Question

Presented below is selected financial information for two divisions of Samberg Brewing.

Supply the missing information for the lettered items. (Round minimum rate of return and ROI to 1 decimal place, e.g. 10.5% and round average operating assets to 0 decimal places e.g. 58,971.)

		Lager				Lite Lager
Contribution margin		$499,200				$300,400
Controllable margin		200,300						(c)
Average operating assets		$		(a)		$1,200,900
Minimum rate of return			%	(b)		15	%
Return on investment		22	%				%	(d)
Residual income		$99,000				$204,000

Answer 1

Ans.		Lager	Lite Lager
	Contribution margin	$499,200	$300,400
	Controllable margin	$200,300	$384,135
	Average operating assets	$910,455	$1,200,900
	Minimum rate of return	11.1%	15%
	Return on investment	22%	32.0%
	Residual income	$99,000	$204,000
	*Calculations for Lager:
	Average operating assets = Controllable margin / Return on assets
	$200,300 / 22%
	$910,455
	Residual income = Controllable margin - (Average operating assets * Minimum rate of return)
	$99,000 = $200,300 - ($910,455 * Minimum rate of return)
	$910,455 * Minimum rate of return = $200,300 - $99,000
	$910,455 * Minimum rate of return = $101,300
	Minimum rate of return = $101,300 / $910,455
	11.1%
	*Calculations for Lite Lager:
	Residual income = Controllable margin - (Average operating assets * Minimum rate of return)
	$204,000 = Controllable margin - ($1,200,900 * 15%)
	$204,000 = Controllable margin - ($1,200,900 * 15%)
	$204,000 = Controllable margin - $180,135
	Controllable margin = $204,000 + $180,135
	Controllable margin = $384,135
	*Return on investment = Controllable margin / Average operating assets
	$384,135 / $1,200,900
	32.0%