Office Systems Center (OSC),a Division of Edwards Corporation Buys and Installs

question 114

Essay

Office Systems Center (OSC),a division of Edwards Corporation buys and installs modular office components.For the most recent year,the division had the following performance targets:
\begin{array}{ll}\text { Asset turnover } & 2.5 \\\text {Profit margin } & 6\%\\\\text { Target rate of return on investments for RI } &13\%\\\\text { Cost of capital } &10\%\\\\text { Income tax rate } &40\%\\\\end{array}
Actual information concerning the company's performance for last year follows:
$\begin{array}{l}\begin{array}{l}\text { Total assets at beginning of year } & \$ 3,600,00 \\\text { Total assets at end of year }&5,300,000 \\\text { Total invested capital (annual ave } &8,000,000\\\text { Sales } &9,000,000\\\text { Variable operating costs }&3,650,000 \\\text { Direct fixed costs }&4,770,000 \\\text { Allocated fixed costs }&675,000\end{array}\\\end{array}$

Required:
a. For OSC, compute the segment margen and the average assetsfor the year.
b. Based on segment margin and average assets, compute the profit margin, asset tumover and ROI.
c. Evaluate the ROI performance of OSC.
d. Using you answers from part $b .$ , compute the residual income of OSC.
e. Compute the EVA of OSC. Why are the EVA and RI levels different?
f. Based on the data given in the problem, discusswhy ROI, EVA and RI may be inappropriate measures of performance for OSC

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Definitions:

Perception

Awareness through the senses; the receipt of impressions; consciousness.

Awareness

Consciousness or recognition of something.

Feelings

Emotional states or reactions that reflect personal perceptions or attitudes towards situations, people, or objects.

Standard Communication Model

A theoretical framework describing the process of transmitting information from a sender to a receiver through a medium.