Sprint Company Has the Following Data for the Current Year

question 69

Essay

Sprint Company has the following data for the current year:
$\begin{array}{lrr}&\text { Division } A&\text { Division } B\\\text { Sales } & \$ 400,000 & \$ 300,000 \\\text { Contribution margin } & 160,000 & 125,000 \\\text { Operating income } & 80,000 & 30,000 \\\text { Average operating assets } & 320,000 & 200,000 \\\text { Weighted average cost of capital } & 15 \% & 15 \%\end{array}$ Sprint Company has a target ROI of 20 percent.
Calculate the following amounts for each division:
a.Margin ratio
b.Turnover ratio
c.ROI
d.Residual income
e.EVA

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Definitions:

Direct Labor Cost

The compensation given to employees who are directly engaged in manufacturing goods or providing services.

Direct Materials Cost

Direct Materials Cost is the expenditure for raw materials that are directly traceable to the production of a specific product or service.

Payment of Dividends

The distribution of a portion of a company's earnings to its shareholders as determined by the company's board of directors.

Factory Overhead

Indirect costs related to manufacturing, such as utilities, maintenance, and salaries of supervisory personnel not directly involved in production.