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Assign 9-2

# Assign 9-2 - C’s minimum rate of return is less than 17...

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Assign 9-2 Q 10-3 Cost Center is a business segment whose manager has control over cost but has no control over revenue or investments in operating assets. Profit Center is a business segment whose manager has control over cost and revenue but has no control over investments in operating assets. Investment Center is a business segment whose manager has control over cost revenue and investments in operating assets. Exercise 10-5 a b c Sales 6000000 10000000 8000000 average operating assets 1500000 5000000 2000000 net operating income 300000 900000 180000 minimum req rate of return 15% 18% 12% ROI 0.2 0.18 0.09 Margin 0.05 0.09 0.0225 Turnover 4 2 4 ROI 0.2 0.18 0.09 Residual income 75000 0 -60000 Part 3 If the rate of return is 17%, Division A and C will accept and B will reject because, A and

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Unformatted text preview: C’s minimum rate of return is less than 17%. Division B’s minimum rate of return is 18%. When measuring by Residual income, only Division B will accept because Residual income for B increased from zero to 50000, where as for A and C, it went down. a b c Residual income 45000 50000-160000 Exercise 10-8 sales net operating income average operating assets ROI 4,500,000 290,000 800,000 0.3625 4,600,000 300,000 800,000 0.375 4,700,000 310,000 800,000 0.3875 4,800,000 320,000 800,000 0.4 4,900,000 330,000 800,000 0.4125 5,000,000 340,000 800,000 0.425 As sales increase, ROI increases. Because of Economies of Scale, income increases as sales increase and assets stay the same which makes the ROI increase....
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