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.

Question

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.

Quizplus · Accepted Answer

The Answer of 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.

The Following Information Is Available About the Status and Operations