Question

Determining Missing Items from Computations Data for the North, South, East, and West divisions of Free Bird Company are as follows: Invested Operating Return on Profit Investment Sales Income Assets Investment Margin Turnover (c) North $860,000 (a) (b) 17.5% 7.0% South (d) $51,300 (e) (f) 4.5% 3.8 East $1,020,000 (g) $680,000 15.0% (h) (i) $89,600 $560,000 West $1,120,000 (k) (I) a. Determine the missing items, identifying each by the letters (a) through (I). If required, round percents and investment turnover to one decimal place.

Answer 1

Answer A:
Ans. A	Operating income = Sales * Profit margin
	$860,000 * 7%
	$60,200
Ans. B	Invested assets = Operating income / Return on investment
	$60,200 / 17.5%
	$344,000
Ans. C	Investment turnover = Return on investment / Profit margin
	17.5% / 7%
	2.50 times
Ans. D	Sales = Operating income / Profit margin
	$51,300 / 4.5%
	$1,140,000
Ans. E	Investment assets = Sales / Investment turnover
	$1,140,000 / 3.8
	$300,000
Ans. F	Return on investment = Investment turnover * Profit margin
	3.8 * 4.5%
	17.10%
Ans. G	Operating income = Invested assets * Return on investment
	$680,000 * 15%
	$102,000
Ans. H	Profit margin = Operating income / Sales * 100
	$102,000 / $1,020,000 * 100
	10%
Ans. I	Investment turnover = Return on investment / Profit margin
	15% / 10%
	1.50 times
Ans. J	Return on investment = Operaitng income / Invested assets * 100
	$89,600 / $560,000 * 100
	16.00%
Ans. K	Profit margin = Operating income / Sales * 100
	$89,600 / $1,120,000 * 100
	8%
Ans. L	Investment turnover = Return on investment / Profit margin
	16% / 8%
	2.00 times
Answer B:	Residual income =   Operating income - (Invested assets * Required ROI)
	North	$60,200 - ($344,000 * 12%)	$18,920
	South	$51,300 - ($300,000 * 12%)	$15,300
	East	$102,000 - ($680,000 * 12%)	$20,400
	West	$89,600 - ($560,000 * 12%)	$22,400
Answer C:		Most Profitable
	1.     Return on investment	North division
	2. Residual income	West division
	*North division has the highest Return on inevestment so this is the most profitable division.
	*West division has the highest Residual income so this is the most profitable division.