Question
In: Accounting
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) |
Using return on investment, which department is most efficient at using assets to generate returns for the company? |
|
| (2.1) |
Assume a target income level of 11.8% of average invested assets. Compute residual income for each department. (Omit the "$" sign in your response.) |
| Electronics | Sporting goods | |
| Residual income | $ | $ |
| (2.2) | Which department generated the most residual income for the company? |
|
| (3) |
Assume the Electronics department is presented with a new investment opportunity that will yield a 14.4% return on assets. (Assume a target income level of 11.8% of average invested assets.) Should the new investment opportunity be accepted? |
|
Solutions
Expert Solution
Answer (1 .1)
Return on Investment = ( Net Income / Average Invested Assets ) * 100
- For Electronics = ($622,500 / $4,150,000) * 100 = 15 %
- For Sporting goods = ($630,000 / $4,500,000) * 100 = 14 %
Answer (1.2)
Since return on investment of Electronics department is higher than that of Sporting goods department. Thus Electronics department is most efficient at using assets to generate returns for the company.
Answer (2.1)
Residual income = Net Income - (Average Invested Assets * Target rate)
- For Electronics = $622,500 - ($4,150,000 * 11.8%) = $622,500 - $489,700 = $132,800
- For Sporting goods = $630,000 - ($4,500,000 * 11.8%) = $630,000 - $531,000 =$99,0000
Answer (2.2)
As per the above calculations , we can conclude that Electronics department has the most residual income for the company.
Answer 3
Accept
Explanation : Even though the proposed new inventment for Electronics department yield a bit less than the existing ROI of electronics department but the yeild is still more than the target ROI or Cost of capital ie 11.8 %. Thus it is recommended to accept the investment opportunity
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
$
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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...
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?
2. Assume a target income level of 12% of average
invested assets. Compute residual income...
[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...
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...
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...
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
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b. Using your answer in part a,
clearly explain and show the substitution effect and the income
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The following information is departmental cost allocation with two service departments and two production departments. Percentage...
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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
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REQ2. What is the total cost in P1...
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