Share
Explore BrainMass

# 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