Question

Managers of three divisions- A, B and C- of Reagan Ltd. delivered following data to Nola Smith, Chief Executive Officer (CEO). Looking at the data Nola states, “I know headquarters want us to evaluate performance of our divisions based on return on investment, but how come we have missing information!!”

Comparative data:

	Departments
	A	B	C
Sales (a)	$300,000	$250,000	$?
Net operating income (b)	$42,000	$35,000	$?
Average operating assets (all investments in operating assets are expected to earn a minimum return of 9%)	$150,000	$?	$500,000
Margin (b) ÷ (a)	?	?	3.5%
Turnover (a) ÷ (c)	?	?	2.0
Return on investment (d) (ROI)	?	7%	?
Residual Income	?	?	?

Required 4.1 Fill in the missing information above. Show your calculation.                                                      Departments A B C Add column and/or row if required. Show your workings here (expand the space as required):     Word count =

Required 4.2 Comment on the relative performances of the three divisions in as much detail as the data permit. Make specific recommendations about how to improve the ROI.                                                        [Word limit: 150 words. Note the word count at the end of your answer] Your answer (expand the space here): Word count =

Required 4.3 What advantages are there to breaking down the ROI computation into two separate elements, margin and turnover?                                                                                                                                    [Word limit: 150 words. Note the word count at the end of your answer] Your answer (expand the space here): Word count =

Required 4.4 Identify accounting items such as investment, profit, revenue and expenses that Division A should control if it is to be fairly evaluated as a separate profit centre within Reagan Ltd. using either ROI and RI.                                                                                                                                                                        [Word limit: 50 words. Note the word count at the end of your answer] Your answer (expand the space here): Word count=

Answer 1