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    Computing divisional income and RI and ROI

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    Eastern Merchants shows the following information for its two divisions for year one.

    Eastern Western
    Revenue....................................1,200,000 3,800,000
    Cost of sales................................769,500 1,900,000
    Allocated corporate overhead..... 72,000 228,000
    Other general and admin. ...........158,500 1,100,000

    The results for year two have been posted:

    Eastern Western
    Revenue................................ 1,200,000 2,800,000
    Cost of sales......................... 769,500 1,400,000
    Allocated corporate overhead... 90,000 210,000
    Other general and admin. ............158,500 1,100,000

    REQUIRED:
    Compute divisional operating income for the two divisions for year two. Ignore taxes. How well have these divisions performed?

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    TL division of Giant Bank has assets of $14.4 billion. During the past year the division had profits of $1.8 billion. Giant bank has a cost of capital of 8 percent. Ignore taxes.
    REQUIRED:
    1. Compute the divisional ROI.
    2. Compute the divisional RI.

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    https://brainmass.com/business/accounting/computing-divisional-income-ri-roi-394103

    Solution Preview

    1. Operating income is income before interest and taxes. We are given the revenue and all costs except interest and taxes.
    Operating Income = Revenue - cost of sales - allocated corporate overhead - other general and admin
    Eastern, Operating Income = ...

    Solution Summary

    Computing divisional income, RI and ROI is examined.

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