Question

Residual Income

The income from operations and the amount of invested assets in each division of Beck Industries are as follows:

Income from Operations |
Invested Assets |
|||

Retail Division | $48,000 | $240,000 | ||

Commercial Division | 76,500 | 450,000 | ||

Internet Division | 43,500 | 290,000 |

Assume that management has established a 10% minimum acceptable return for invested assets.

**a.** Determine the residual income for each
division.

Retail Division |
Commercial Division |
Internet Division |
|||||||

Income from operations | $48,000 | $76,500 | $43,500 | ||||||

Minimum acceptable income from operations as a percent of invested assets | |||||||||

Residual income | $ | $ | $ |

**b.** Which division has the most residual
income?

Answer #1

**a) Calculation of Residual Income for Each Division
(Amts in $)**

Particulars |
Retail Division |
Commercial Division |
Internet Division |

Income from Operations | 48,000 | 76,500 | 43,500 |

Less: Minimum acceptable income from operations as a percent of invested assets (Invested Assets*10%) | (240,000*10%) = (24,000) | (450,000*10%) = (45,000) | (290,000*10%) = (29,000) |

Residual Income | 24,000 | 31,500 | 14,500 |

**b)** The retail division has the most residual
income (i.e. $24,000). (as calculated in part a)

Residual Income
The income from operations and the amount of invested assets in
each division of Beck Industries are as follows:
Income from Operations
Invested Assets
Retail Division
$90,000
500,000
Commercial Division
119,700
570,000
Internet Division
67,600
520,000
Assume that management has established a 10% minimum acceptable
return for invested assets.
a. Determine the residual income for each
division.
Retail Division
Commercial Division
Internet Division
Income from operations
$90,000
$119,700
$67,600
Minimum acceptable of income from operations
Residual income
b....

Residual Income
The income from operations and the amount of invested assets in
each division of Beck Industries are as follows:
Income from Operations
Invested Assets
Retail Division
$154,000
$770,000
Commercial Division
139,400
820,000
Internet Division
62,400
260,000
Assume that management has established a 12% minimum acceptable
return for invested assets.
a. Determine the residual income for each
division.
Retail Division
Commercial Division
Internet Division
Income from operations
$154,000
$139,400
$62,400
Minimum acceptable income from operations as a percent of...

Residual Income
The operating income and the amount of invested assets in each
division of Conley Industries are as follows:
Operating income
Invested Assets
Retail Division
$176,400
$840,000
Commercial Division
112,700
490,000
Internet Division
96,900
570,000
Assume that management has established a 12% minimum acceptable
return for invested assets.
a. Determine the residual income for each
division.
Retail Division
Commercial Division
Internet Division
Operating income
$176,400
$112,700
$96,900
Minimum acceptable operating income as a percent of invested
assets
Residual income...

Return on Investment
The income from operations and the amount of invested assets in
each division of Beck Industries are as follows:
Income from Operations
Invested Assets
Retail Division
$52,200
$290,000
Commercial Division
46,400
290,000
Internet Division
117,600
840,000
a. Compute the return on investment for each
division. (Round to the nearest whole number.)
Division
Percent
Retail Division
%
Commercial Division
%
Internet Division
%
b. Which division is the most profitable per
dollar invested?
Retail Division

The income from operations and the amount of invested assets in
each division of Devon Industries are as follows:
Income from Operations
Invested Assets
Sporting Goods Division
$134,900
710,000
Health Care Division
84,800
530,000
Commercial Division
37,800
270,000
a. Compute the rate of return on investment for
each division. (Round to the nearest whole number.)
Division
Percent
Sporting Goods Division
%
Health Care Division
%
Commercial Division
%
b. Which division is the most profitable per
dollar invested?
The income...

Return on Investment
The income from operations and the amount of invested assets in
each division of Beck Industries are as follows:
Income from Operations
Invested Assets
Retail Division
$80,000
$400,000
Commercial Division
171,600
780,000
Internet Division
55,500
370,000
a. Compute the return on investment for each
division. (Round to the nearest whole number.)
Division
Percent
Retail Division
%
Commercial Division
%
Internet Division
%
b. Which division is the most profitable per
dollar invested?

The income from operations and the amount of invested assets in
each division of Beck Industries are as follows:
Income from Operations
Invested Assets
Retail Division
$103,400
470,000
Commercial Division
53,200
280,000
Internet Division
126,000
700,000
a. Compute the rate of return on investment for
each division. (Round to the nearest whole number.)
Division
Percent
Retail Division
%
Commercial Division
%
Internet Division
%
b. Which division is the most profitable per
dollar invested?

The income from operations and the amount of invested assets in
each division of Beck Industries are as follows:
Income from Operations
Invested Assets
Retail Division
$135,000
$750,000
Commercial Division
161,700
770,000
Internet Division
32,500
250,000
a. Compute the return on investment for each
division. (Round to the nearest whole number.)
Division
Percent
Retail Division
fill in the blank 1 %
Commercial Division
fill in the blank 2 %
Internet Division
fill in the blank 3 %
b. Which division...

The operating income and the amount of invested assets in each
division of Conley Industries are as follows:
Operating income
Invested Assets
Retail Division
$60,800
$320,000
Commercial Division
52,800
240,000
Internet Division
181,700
790,000
Assume that management has established a 8% minimum acceptable
return for invested assets.
a. Determine the residual income for each
division.
Retail Division
Commercial Division
Internet Division
Operating income
$60,800
$52,800
$181,700
Minimum acceptable operating income as a percent of invested
assets
Residual income
-----------------------------------------------------------------------------
Determining...

The sales, income from operations, and invested assets for each
division of Grosbeak Company are as
follows:
Sales
Income from
Operations
Invested
Assets
Division E $5,000,000 $550,000 $2,400,000
Division F 4,800,000 860,000 2,500,000
Division G 7,000,000 860,000 2,900,000
(a) Using the expanded expression, determine the profit margin,
investment turnover, and
rate of return on investment for each division. Round to one
decimal place.
(b) Which is (are) the most profitable per dollar invested?
ANS: (a)
a) Division
E
b) Division...

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