Question

Presented below is selected financial information for two divisions of Samberg Brewing. Supply the missing information for the lettered items.

Lager Lite Lager

Contribution margin $500,000 $300,000

Controllable margin 200,000 (c)

Average operating assets $ (a) $1,200,000

Minimum rate of return % (b) 11 %

Return on investment 16 % % (d)

Residual income $100,000 $204,000

Answer 1

Solution:

Lager:

Average Operating Assets = Controllable margin / Return on Investment = $200,000 / 16% = $1,250,000

Minimum Rate of Return = (Controllable Margin - Residual Income) / Average Operating Assets = ($200,000 - $100,000) / $1,250,000

= 8%

Lite Lager:

Controllable Margin = Residual Income + (Average Operating Assets* Minimum Rate of Return) = $204,000 +($1,200,000*11%)

= $204,000 + $132,000 = $336,000

Return On Investment = Controllable Margin / Average Operating Assets = $336,000 / $1,200,000 = 28%

	Lager	Lite Lager
Contribution Margin	$500,000.00	$300,000.00
Controllable Margin	$200,000.00	$336,000.00
Average Operating Assets	$1,250,000.00	$1,200,000.00
Minimum Rate of Return	8%	11%
Return on Investment	16%	28%
Residual Income	$100,000.00	$204,000.00