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Chapter 10 - Exercise 10-4(45 minutes 1 Margin = = Turnover...

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Exercise 10-4  (45 minutes) 1. Net operating income Margin =   Sales $16,000 =    =  2% $800,000 Sales Turnover =   Average operating assets $800,000 =    =  8 $100,000 ROI =  Margin  ×  Turnover =  2%  ×  8 =  16% 2. Net operating income Margin =   Sales $16,000 +  $6,000 =     $800,000 +  $80,000 $22,000 =    =  2.5% $880,000 Sales Turnover =   Average operating assets $800,000 +  $80,000 =   $100,000 $880,000 =    =  8.8 $100,000 ROI =  Margin  ×  Turnover =  2.5%  ×  8.8 =  22%
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Exercise 10-4  (continued) 3. Net operating income Margin =   Sales $16,000 +  $3,200 =     $800,000 $19,200 =    =  2.4% $800,000 Sales Turnover =   Average operating assets $800,000 =    =  8 $100,000 ROI =  Margin  ×  Turnover =  2.4%  ×  8 =  19.2% 4. Net operating income Margin =     Sales $16,000 =    =  2% $800,000 Sales Turnover =   Average operating assets $800,000 =   $100,000 - $20,000 $800,000 =    =  10 $80,000 ROI =  Margin  ×  Turnover =  2%  ×  10 = 20%
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Exercise 10-5  (45 minutes) 1. Computation of ROI. Division A:   $300,000 $6,000,000 ROI =     ×    = 5%  ×  4 =  20% $6,000,000 $1,500,000 Division B:   $900,000 $10,000,000 ROI =     ×    =  9%  ×  2 =  18% $10,000,000 $5,000,000 Division C:   $180,000 $8,000,000 ROI =     ×    = 2.25%  ×  4 = 9% $8,000,000 $2,000,000 2. Division A Division B Division C Average operating assets .... $1,500,000 $5,000,000 $2,000,000  Required rate of return ......... ×                15%     ×                18%     ×                12%       Required operating income.. $        225,000     $        900,000     $        240,000       Actual operating income ...... $  300,000 $  900,000 $  180,000  Required operating income  (above) ..............................       225,000           900,000             240,000       Residual income .................. $   
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