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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%

Business   Accounting   
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Answer #1
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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