Question

# Given the following information, calculate the ROI and the RI for the Cub Division of Bear,...

Given the following information, calculate the ROI and the RI for the Cub Division of Bear, Inc. Break ROI into profit margin and asset turnover components.

Sales \$1,000,000

Cost of Goods Sold \$ 700,000

SG&A Expenses 200,000

Operating Assets (January 1). \$1,250,000

Operating Assets (December 31). .\$1,750,000

Required Rate of Return 8%

 Sales 1000000 Less: Cost of Goods Sold 700000 SG&A Expenses 200000 Net operating income 100000 Average Operating Assets 1500000 =(1250000+1750000)/2 Profit margin = Net operating income/Sales Asset turnover = Sales/Average Operating Assets ROI = Margin*Turnover Profit margin 10% =100000/1000000 Asset turnover 0.67 =1000000/1500000 ROI 6.67% RI(Residual Income) = Net operating income-Minimum required return RI (20000) =100000-(1500000*8%) Note: Asset turnover and ROI have been rounded off 2 decimal places

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