Question

Determining Missing Items from Computations

Data for the North, South, East and West divisions of Free Bird Company are as follows:

Sales

Income from Operations

Invested Assets

Return on Investment

Profit Margin

Investment Turnover

North

$860,000

(a)

(b)

17.5%

7.0%

(c)

South

(d)

$51,300

(e)

(f)

4.5%

3.8

East

$1,020,000

(g)

$680,000

15.0%

(h)

(i)

West

$1,120,000

$89,600

$560,000

(j)

(k)

(l)

a. Determine the missing items, identifying each by the letters (a) through (l). If required, round percents and investment turnover to one decimal place.

a.	$
b.	$
c.
d.	$
e.	$
f.											%
g.	$
h.											%
i.
j.											%
k.											%
l.

b. Determine the residual income for each division, assuming that the minimum acceptable rate of return established by management is 12%.

Division	Residual Income
North Division	$
South Division	$
East Division	$
West Division	$

c. Which division is the most profitable in terms of (1) return on investment and (2) residual income?

	Most Profitable
1. Return on Investment
2. Residual Income

Answer 1

1)		Sales	income from	invested	ROI	profit	investment
			operations	assets		margin	turnover
	North	860,000	60200	344000	17.50%	7%	2.50
	South	1140000	51,300	300000	17.10%	4.50%	3.8
	East	1,020,000	102000	680,000	15%	10.0%	1.5
	West	1,120,000	89,600	560,000	16.0%	8.0%	2.00
		ROI =	profit margin *turnover
			OR
			income from operatings/invested assets
		Profit margin =		income from operations/sales
		turnover=		sales/invested assets
	a	60200
	b	344000
	c	2.50
	d	1140000
	e	300000
	f	17.10%
	g	102000
	h	10.0%
	i	1.5
	j	16.0%
	k	8.0%
	l	2.00
b)	Division		Residual income
	North Division		18920
	South division		15300
	East division		20400
	West Division		22400
	Residual income =		income from operatins -(invested assets*min rate of return)
				most profitable
c)	Return on investment			North Division
	Residual income			West Division