For its three investment centers Gerrard Company accumulates

For its three investment centers, Gerrard Company accumulates the following data:

I

II

III

Compute the return on investment (ROI) for each center.

I

II

III

Compute the return on investment and the residual income.

		I		II		III
Sales		$1,906,000		$3,949,000		$4,008,000
Controllable margin		1,324,700		2,307,530		4,010,160
Average operating assets		5,095,000		7,957,000		12,152,000

Solution

Answers

Requirement 1

I

II

III

A

Sales

$   1,906,000.00

$    3,949,000.00

$    4,008,000.00

B

Controllable margin

$   1,324,700.00

$    2,307,530.00

$    4,010,160.00

C

Average operating assets

$   5,095,000.00

$    7,957,000.00

$ 12,152,000.00

D=(C/D) x 100

Return on Investments

26.00%

29.00%

33.00%

Requirement 2

A

Average operating assets

$   3,014,600.00

B

Controllable margin

$      663,212.00

C

Minimum Rate of Return

10%

D=A x C

Expected Income

$      301,460.00

E = (B/A) x 100

Return On Investment

22.00%

F = B - D

Residual Income

$      361,752.00

Requirement 3

A

Contribution margin

$   1,240,800.00

B

Controllable margin

$      892,276.00

C

Average operating assets

$   4,055,800.00

D

Minimum Rate of Return

15%

E = (B/C) x 100

Return On Investment

22.00%

F = C x D

Expected Margin

$      608,370.00

G = B - F

Residual Income

$      283,906.00

Requirement 1
		I	II	III
A	Sales	$   1,906,000.00	$    3,949,000.00	$    4,008,000.00
B	Controllable margin	$   1,324,700.00	$    2,307,530.00	$    4,010,160.00
C	Average operating assets	$   5,095,000.00	$    7,957,000.00	$ 12,152,000.00
D=(C/D) x 100	Return on Investments	26.00%	29.00%	33.00%