The Following Information Is Available About the Status and Operations

question 137

Essay

The following information is available about the status and operations for Division B of Abad Company, which has a minimum required ROI of 20%. Answer each item independently of the others.
$$\begin{array} { l r r } & \text { Division B } \\\text { Divisional investment } & \$ 750,000 \\\text { Divisional profit } & \$ 275,000 \\\text { Divisional sales } & \$ 1,800,000\end{array}$$
Required:
a. Compute the ROI for Division B.
b. Compute the residual income for Division B.
c. Division B could increase its profit by $10,000 by increasing its investment by $40,000. Compute its total residual income.
d. Division B could increase its profit margin ratio by one percentage point (for example: from 10% to 11%), without increasing total sales or investment. Compute its new ROI.
e. Division B could reduce its investment so that its asset turnover increased by one time, while holding total sales and profit constant. Compute its new ROI.

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Definitions:

Technological Advances

Improvements or innovations in technology that increase productivity, efficiency, or bring new products and services to the market.

Incomes

Earnings accrued, especially periodically, from labor or investment gains.

Freedom To Farm Act

A U.S. federal law enacted in 1996 aimed at allowing farmers greater management flexibility in what they plant and produce.