Question

The following information is available about the status and operations of the Manufacturing Division of Taylor...

The following information is available about the status and operations of the Manufacturing Division of Taylor Company, which has a hurdle rate of 6%.

Divisional identifiable average assets

$411,637

Divisional income from operations

$18,924

Divisional sales revenue

$368,363


a. Compute the ROI for the Manufacturing Division.
b. Break the Manufacturing Division ROI down using the DuPont formula.
c. Compute the residual income for the Manufacturing Division.  

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Answer #1

a) ROI = Income from operation*100/average assets = 18924*100/411637 = 4.6%

b) Margin = Income from operation*100/sales revenue = 18924*100/368363 = 5.14%

Turnover = Sales revenue/average assets = 368363/411637 = 0.89 Times

c) Residual income = actual income- minimum income

                                 = 18924-(411637*6%)

Residual income = -5774.22

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