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?

Question

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?

Quizplus · Accepted Answer

The Answer of 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?

The Following Data Pertain to the Oliver Division of Kemper