Question

Division from last year. The Controller has asked you to compute the ROI and Residual Income based on data from last year and if the division adds a new product line. Use the Information Included in the Excel Simulation and the Excel functions described below to complete the task. . Cell Reference: Allows you to refer to data from another cell in the worksheet. From the Excel Simulation below. If in a blank cell. "=G5" was entered, the formula would output the result from cell G5, or 4.00 In this example. • Basic Math functions: Allows you to use the basic math symbols to perform mathematical functions. You can use the following keys: - (plus sign to add). - (minus sign to subtract). - (asterisk sign to multiply), and / (forward slash to divide). From the Excel Simulation below. If in a blank cell =G5-G6 was entered the formula would add the values from those cells and output the result, or 10.00 In this example. If using the other math symbols the result would output an appropriate answer for its function. • SUM function: Allows you to refer to multiple cells and adds all the values. You can add Individual cell references or ranges to utilize this function. From the Excel Simulation below. If in a blank cell "ESUM(G5.66.67)" was entered the formula would output the result of adding those three separate cells, or 12.00 in this example. Similarly. If in a blank cell"=SUMG5:G7) was entered, the formula would output the same result of adding those cells, except they are expressed as a range in the formula, and the result would be 12.00 In this example. • IF function: Allows you to test a condition and retum a specific value is the result is true and different value of the result is false. The syntax of the IF function is "=F(test_condition value_lt_true,value_f_false" and specific considerations need to be made when using this function. The test_condition argument is an evaluation of the status of a cell, such as if the value of a cell is greater than, less than, or equal to another number or cell. The value_lt_true and value_/_false arguments will return any specific result for each option, such as another cell reference, a value, or text. Throughout the entire equation. If text is being used in the test_condition, value_it_true, or value_lt_false arguments then the text itself should be entered In quotations so that Excel will recognize the text as a "string of text Instead of another function. From the Excel Simulation below. If in a blank cell "IF(G10>20."Total cost Is High"."Total cost is low") was entered the formula would output the result of the value_/t_true since the test_condition would be result as true, or in this case the text "Total cost is high". Excel processes the IF function by separating It Out Into separate parts. First the test_condition - Excel thinks, find cell G10 and determine if the value is greater than 20. Once Excel determines If the result of that test_condition is TRUE or FALSE, It will return the value_it_true or value_t_false. ? X = INSERT - Sign In KẾ H5 , FILE HOME Calibri Paste B I Return on Investment (ROI) and Residual Income - Excel PAGE LAYOUT FORMULAS DATA REVIEW VIEW 11 A A = - 4 - Alignment Number Conditional Format as Cell - Formatting Table Styles Styles U - Cells - Editing Clipboard Font x x Adams Corporation evaluates divisional managers based on ROI. Operating 1 Adams Corporation evaluates divisional managers based on ROI. Operating results for the 2 company's Northern Division for last year are given below: Sales Variable expenses Contribution margin Fixed expenses Net operating income 27,000,000 16,200,000 10,800,000 8,805,000 1,995,000 Average divisional operating assets $ 9,500,000 12 The Northern Division has an opportunity to add a new product line at the beginning of the year as follows: $ Average required investment Net operating income 2,500,000 400,000 17 Adams Corporation's minimum acceptable rate of return 15% 19 Assuming the company accepts all projects that meet or exceed the minimum rate of return, compute the following: 21 Northern Division ROI for last year 23 Northern Division ROI if new product line is added

Answer 1

Northern Division ROI for last year = Net Income / Average Operating Assets
= $1995000/9500000 = 21%
Excel Function = C8/C10

Northern Division ROI if new line is added = Net Income / Average Operating Assets
= ($1995000+400000)/(9500000+2500000) = 19.96%
Excel Function = (C8+C15)/(C10+C14)

IF Function = IF(C23>=C21,"ACCEPT","REJECT")

Northern Division Residual Income = Net Operating Income - Average Operating assets x Target return
= $1995000 - $9500000 x 15% = $570000
Excel Function = C8 - C10 x D17

Northern Division Residual Income if new line is added = Net Operating Income - Average Operating assets x Target return
= ($1995000+400000) - ($9500000+2500000) x 15% = $595000
Excel Function = (C8+C15) - (C10+C14) x D17

IF Function = IF(C30>=C28,"ACCEPT","REJECT")