Question
In: Accounting
Megamart, a retailer of consumer goods, provides the following information on two of its departments (each...
Megamart, a retailer of consumer goods, provides the following
information on two of its departments (each considered an
investment center).
| Investment Center | Sales | Income |
Average Invested Assets |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Electronics | $ | 34,200,000 | $ | 2,907,000 | $ | 17,100,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sporting goods | 16,768,000 | 2,096,000 | 13,100,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
1. Compute return on investment for each
department. Using return on investment, which department is most
efficient at using assets to generate returns for the
company? Compute return on investment for each department. Using return on investment, which department is most efficient at using assets to generate returns for the company?
Assume a target income level of 12% of average invested assets. Compute residual income for each department. Which department generated the most residual income for the company?
Assume the Electronics department is presented with a new investment opportunity that will yield a 14% return on investment. Should the new investment opportunity be accepted?
|
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Solutions
Expert Solution
Hey,
Part 1 :
Return on investment is calculated by this formula :
= Net Profit/Investment * 100
| Return on Investment | |||||
| Choose Numerator: | / | Choose Denominator: | = | Return on Investment | |
| Income | / | Investment | = | Return on Investment | |
| Electronics | 2907000 | / | 17100000 | = | 17 |
| Sporting Goods | 2096000 | / | 13100000 | = | 16 |
| Which department is most efficient at using assets to generate returns for the company? | Electronics | ||||
Part 2 :
Target Net income = Average Investment * 12%
| Investment Center | Electronics | Sporting Goods |
| Net income | 2907000 | 2096000 |
| Target net income | 2052000 | 1572000 |
| Residual income | 855000 | 524000 |
| Which department is most efficient at using assets to generate returns for the company? | Electronics | |
Part 3 :
Current Return on investment we are having on the electronics department is 17% and we are having an opportunity to earn a 14% return by making the new investment. Prima facie we can say we can't accept the investment opportunity as 14% is less than 17%. But if we imagine that we can't earn 17% by increasing our existing facility then having a 2nd best option is better. Imagine the normal bank deposit rate is 10 % then having 14 % is better than earning 10 %. So this decision is depending on the other factors, Prima Facie we shall not accept it.
Hope this made sense, and help you understand the concept.
ekkarill92 answered 1 year agoRelated Solutions
Megamart, a retailer of consumer goods, provides the following information on two of its departments (each...
Megamart, a retailer of consumer goods, provides the following
information on two of its departments (each considered an
investment center).
Investment Center
Sales
Income
Average
Invested Assets
Electronics
$
63,460,000
$
3,173,000
$
16,700,000
Sporting goods
19,050,000
2,286,000
12,700,000
Exercise 9-10 Computing return on investment and
residual income; investing decision LO A1
1. Compute return on investment for each
department. Using return on investment, which department is most
efficient at using assets to generate returns for the
company?
2. Assume...
Megamart, a retailer of consumer goods, provides the following information on two of its departments (each...
Megamart, a retailer of consumer goods, provides the following
information on two of its departments (each considered an
investment center).
Investment Center
Sales
Income
Average
Invested Assets
Electronics
$
42,000,000
$
3,360,000
$
16,800,000
Sporting goods
19,456,000
2,432,000
12,800,000
1. Compute return on investment for each
department. Using return on investment, which department is most
efficient at using assets to generate returns for the
company?
2. Assume a target income level of 10% of average
invested assets. Compute residual income...
Comart, a retailer of consumer goods, provides the following information on two of its departments (each...
Comart, a retailer of
consumer goods, provides the following information on two of its
departments (each considered an investment center).
Investment
Center
Sales
Net
Income
Average
Invested Assets
Electronics
$
10,200,000
$
622,500
$
4,150,000
Sporting goods
7,900,000
630,000
4,500,000
(1.1)
Compute return on
investment for each department. (Do not round your
intermediate calculations and round your final answers to the
nearest whole percentages. Omit the "%" sign in your
response.)
Return on
Investment
Electronics
%
Sporting goods
%
(1.2)...
[The following information applies to the questions displayed below.] Megamart, a retailer of consumer goods, provides...
[The following information applies to the questions
displayed below.]
Megamart, a retailer of consumer goods, provides the following
information on two of its departments (each considered an
investment center).
Assume a target income level of 10% of average invested assets.
Compute residual income for each department. Which department
generated the most residual income for the company?
Investment Center
Electronics
Sporting Goods
Net income
Target net income
Residual income
Which department is most efficient at
using assets to generate returns for...
Required information [The following information applies to the questions displayed below.] Megamart, a retailer of consumer...
Required information
[The following information applies to the questions
displayed below.]
Megamart, a retailer of consumer goods, provides the following
information on two of its departments (each considered an
investment center).
Investment Center
Sales
Income
Average
Invested Assets
Electronics
$
40,000,000
$
2,880,000
$
16,000,000
Sporting goods
20,000,000
2,040,000
12,000,000
Compute profit margin and investment turnover for each
department. Which department generates the most net income per
dollar of sales? Which department is most efficient at generating
sales from average...
Required information [The following information applies to the questions displayed below.] Megamart, a retailer of consumer...
Required information
[The following information applies to the questions
displayed below.]
Megamart, a retailer of consumer goods, provides the following
information on two of its departments (each considered an
investment center).
Investment Center
Sales
Income
Average
Invested Assets
Electronics
$
40,000,000
$
2,880,000
$
16,000,000
Sporting goods
20,000,000
2,040,000
12,000,000
1. Compute return on investment for each
department. Using return on investment, which department is most
efficient at using assets to generate returns for the
company?
2. Assume a target...
E-books, an online book retailer, has two operating departments—corporate sales and consumer sales—and two support departments—human...
E-books, an online book retailer, has two operating
departments—corporate sales and consumer sales—and two support
departments—human resources and information systems. Each sales
department conducts merchandising and marketing operations
independently. E-books uses number of employees to allocate human
resources costs and processing time to allocate information systems
costs. The following data are available for September 2017:
Support Departments
Operating Departments
Human Resources
Information Systems
Corporate Sales
Consumer Sales
Budgeted costs for each department
$72,700
$234,400
$998,270
$489,860
Budgeted Number of Employees...
In each of the following examples, a consumer purchases just two goods: x and y. Based...
In each of the following examples, a consumer purchases just two
goods: x and y. Based on the information provided, select the set
of indifference curves that is the best match.
Kieran considers chewing gum (x) to be a perfect substitute for
mints (y).
In the previous question, what is the marginal rate of
substitution between chewing gum and mints? Enter an integer
value
Maeve will only consume toast (x) with two eggs (y).
Efia enjoys both boba tea...
Two goods are in the consumer basket, goods X and Y. The consumer income is I,...
Two goods are in the consumer basket,
goods X and Y. The consumer income is I, price of good X
is Px, and price of good Y is Py. Use the
consumer model to derive the demand curve for good X. Explain your
answer in details.
b. Using your answer in part a,
clearly explain and show the substitution effect and the income
effect.
The following information is departmental cost allocation with two service departments and two production departments. Percentage...
The following information is departmental cost allocation with
two service departments and two production departments.
Percentage Service Provided to
Department
Cost
S1
S2
P1
P2
Service 1 (S1)
$
30,000
0
%
30
%
35
%
35
%
Service 2 (S2)
20,000
20
0
20
60
Production 1 (P1)
100,000
Production 2 (P2)
150,000
REQ1. What is the amount of service department cost allocated to
P1 and P2 using the direct method?
REQ2. What is the total cost in P1...
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