Question
In: Accounting
Last year’s results for the Oak Division of Forest Company are: Average operating assets  
Last year’s results for the Oak Division of Forest Company are:
Average operating assets $250,000
Operating profit 45,000
Sales 300,000
The required cost of capital for Forest Company is 15%.
Required: Answer the following questions:
1. Compute the residual income for the Oak Division.
2. Compute the return on investment for the Oak Division.
3. Calculate the profit margin ratio and asset turnover ratio for Oak Division using the original numbers.
4. Would Oak Division choose to increase profit by $20,000 from an investment of $125,000 if it is evaluated using return on investment? If it was evaluated based on residual income? Explain your answer.
5. Suppose instead of making additional investments, Oak Division could increase its profit margin ratio by one percent (for example from 12% to 13%) by cutting costs without increasing either sales or investment, what would be the new return on investment?
Solutions
ekkarill92 answered 1 year agoRelated Solutions
Westerville Company reported the following results from last year’s operations:
Westerville Company reported the following results from last year’s operations:
Sales
$
1,000,000
Variable expenses
300,000
Contribution margin
700,000
Fixed expenses
500,000
Net operating income
$
200,000
Average operating assets
$
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Contribution margin ratio
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Variable expenses
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Contribution margin
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Fixed expenses
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Net operating income
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300,000
Contribution margin ratio
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Fixed expenses
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Westerville Company reported the following results from last year’s operations: Sales $ 1,400,000 Variable expenses 720,000...
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year’s operations:
Sales
$
1,400,000
Variable expenses
720,000
Contribution margin
680,000
Fixed expenses
470,000
Net operating income
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210,000
Average operating assets
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875,000
At the beginning of this year, the company has a $350,000
investment opportunity with the following cost and revenue
characteristics:
Sales
$
560,000
Contribution margin ratio
70
% of sales
Fixed expenses
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336,000
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Required
1. What is the...
Westerville Company reported the following results from last year’s operations: Sales $ 1,200,000 Variable expenses 420,000...
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Sales
$
1,200,000
Variable expenses
420,000
Contribution margin
780,000
Fixed expenses
600,000
Net operating income
$
180,000
Average operating assets
$
600,000
This year, the company has a $137,500 investment opportunity
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Contribution margin ratio
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rev: 04_28_2016_QC_CS-49731
1.
value:
1.00...
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$
2,300,000
Variable expenses
670,000
Contribution margin
1,630,000
Fixed expenses
1,170,000
Net operating income
$
460,000
Average operating assets
$
1,437,500
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Contribution margin ratio
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The company’s minimum required rate of return is 15%.
6. What is the ROI...
Westerville Company reported the following results from last year’s operations: Sales $ 1,400,000 Variable expenses 720,000...
Westerville Company reported the following results from last
year’s operations:
Sales
$
1,400,000
Variable
expenses
720,000
Contribution
margin
680,000
Fixed
expenses
470,000
Net operating
income
$
210,000
Average
operating assets
$
875,000
At the beginning of this year, the company has a $350,000
investment opportunity with the following cost and revenue
characteristics:
Sales
$
560,000
Contribution
margin ratio
70
% of sales
Fixed
expenses
$
336,000
The company’s minimum required rate of return is 15%.
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Ch 11f Westerville Company reported the following results from last year’s operations: Sales $ 1,400,000 Variable...
Ch 11f
Westerville Company reported the following results from last
year’s operations:
Sales
$
1,400,000
Variable expenses
680,000
Contribution margin
720,000
Fixed expenses
440,000
Net operating income
$
280,000
Average operating assets
$
875,000
At the beginning of this year, the company has a $300,000
investment opportunity with the following cost and revenue
characteristics:
Sales
$
480,000
Contribution margin ratio
80
% of sales
Fixed expenses
$
336,000
The company’s minimum required rate of return is 15%.
1. What is...
Westerville Company reported the following results from last year’s operations: Sales $ 1,400,000 Variable expenses 680,000...
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year’s operations:
Sales
$
1,400,000
Variable expenses
680,000
Contribution margin
720,000
Fixed expenses
440,000
Net operating income
$
280,000
Average operating assets
$
875,000
At the beginning of this year, the company has a $300,000
investment opportunity with the following cost and revenue
characteristics:
Sales
$
480,000
Contribution margin ratio
80
% of sales
Fixed expenses
$
336,000
The company’s minimum required rate of return is 15%.
1. If the company pursues the...
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