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Return on sales

1. Riscalla Company has two divisions, A and B. The following information is available:

Division A
Revenue: $300,000
Income: $30,000
Invested capital: $100,000
Cost of capital: 20%

Division B
Revenue: $350,000
Income: $90,000
Invested capital: $150,000
Cost of capital: 15%

Calculate the residual income for each Division.

2. Division E had an ROI last year of 15%. The division's minimum required rate of return is 10%. If the division's invested capital last year was $450,000, what was the division's residual income last year?

3. The following data is available for the North Division of Blueride Products, Inc., and the single product it makes:

Unit selling price: $20
Variable cost per unit: $12
Annual fixed costs $280,000
Invested capital: $1,500,000

a. How many units must South sell each year to have an ROI of 16%?
b. If South wants a residual income of $50,000, and the minimum required rate of return is 10%, what is the capital turnover?

4. Sales and invested capital for Division 1 and Division 2 are given below:

Division 1
Sales: $20,000
Invested Capital: $8,000

Division 2
Sales: $50,000
Invested Capital: $10,000

What is the return on sales that each division will have to earn in order to generate a return on investment of 20%?

Solution Preview

1. Riscalla Company has two divisions, A and B. The following information is available:

Division A
Revenue: $300,000
Income: $30,000
Invested capital: $100,000
Cost of capital: 20%

Division B
Revenue: $350,000
Income: $90,000
Invested capital: $150,000
Cost of capital: 15%

Calculate the residual income for each Division.

Residual Income= Income- Cost of Capital*Invested Capital
Division A
30000-20%*100000
=$10000
Division B
90000-15%*150000
=$67500

2. Division E had an ROI last year of 15%. The division's minimum required rate of return is 10%. If the division's invested capital last year was $450,000, ...

Solution Summary

This provides the steps to calculate the return on sales that each division will have to earn in order to generate a return on investment

$2.19