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Chapter 10

# 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%
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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