Renposbility Accounting

No.1
Acme, a division of Ace Manufacturing, has assets of $225,000 and an operating income of $55,000.
Required:
1. What is the division’s ROI?
2. If the minimum rate of return is 12 percent, what is the division’s residual income?

No.2
Consider the following (000s omitted):
Division A Division B
Operating assets $5,000 $12,500
Operating income $1,000 $ 2,250
ROI 20% 18%
Required:
1. Which is the more successful division in terms of KOI?
2. Using 16 percent as the minimum required rate of return, compute the residual income for each
division. Which division is more successful under this rate?

No.3
The following data are given for the Key West division for 2018:
Return on investment (ROI) 25%
Sales $1,200,000
Margin 10%
Minimum required rate of return 18%
Required:
1. Compute the division’s operating assets.
2. Compute the division’s residual income (RI).

No.4
The Pip division has the following operating data:
Operating assets $200,000
Operating income $ 50,000
Minimum required rate of return 16%
Required:
1. Compute the ROI and RI for this division.
2. Assume that the Pip division is presented with an investment project yielding a 20 percent return on its
investment requiring a cash outlay of $30,000. Would the manager of the Pip division accept this
investment under the ROI approach? How about under the RI approach?

No.5
Consider the following sales and operating data for the three divisions of a conglomerate:
Division A Division B Division C
Sales $140,000 $180,000 $250,000
Operating income $ 5,000 $ 6,300 $ 14,400
Operating assets $ 20,000 $ 35,000 $ 90,000
Minimum required rate of return 10% 19% 20%
Required:
1. Compute the return on investment (ROI) for each division.
2. Assume that each division is provided with an investment opportunity that could produce 20 percent
return on investment. Which divisions would accept or reject it?
3. Compute the residual income (RI) for each division.
4. Assume that each division is provided with an investment opportunity that would produce an 18
percent return on investment. Which divisions will accept or reject it?
No.6
XYZ Corporation has three divisions whose income statements and balance sheets are summarized below:
Division X Division Y Division Z
Sales $500,000 (d) (g)
Operating income $ 25,000 $30,000 (h)
Operating assets $100,000 (e) $250,000
Turnover (a) (f) 0.4
Margin (b) 0.4% 5%
Return on investment (ROI) (c) 2% (i)
Required:
1. Supply the missing data in the table above and summarize the results.
2. Comment on the relative performance of each division. What questions can be raised as a result of their
performance?