The Following Data Pertain to the Oliver Division of Kemper

question 17

Essay

The following data pertain to the Oliver Division of Kemper Company:
The company uses responsibility accounting concepts when evaluating performance; Oliver's division manager is contemplating the following three investments. He can invest up to $400,000. $\begin{array}{lrrr}&\text { No. } 1&\text { No. } 2&\text { No. } 3\\\text { Cost } & \$ 250,000 & \$ 300,000 & \$ 400,000 \\\text { Expected income } & 50,000 & 54,000 & 96,000\end{array}$
Required:
A. Calculate the ROIs of the three investments.
B. What is the division manager's current ROI, computed by using responsibility accounting concepts?
C. Which of the three investments would be selected if the manager's focus is on Oliver's divisional performance, as judged by ROI? Why?
D. If Kemper has an imputed interest charge of 22%, compute the residual income of investment no. 3. If Oliver's Division manager is evaluated by residual income, is this investment attractive from Oliver's perspective? From Kemper's perspective? Why?

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Definitions:

Handle Any Situation

The capability or readiness to manage or deal with all possible occurrences or circumstances effectively.

Best Business Attire

The most appropriate and professional clothing selected for business environments or events.

Comfortable With Equipment

The state of being at ease and proficient in using specific tools or machinery.

Controls

In management, controls refer to the processes and systems put in place to monitor performance and ensure objectives are met.