Question

Consolidated Industries is a diversified manufacturer with business units organized as divisions, including the Reigis Steel Division Consolidated monitors its divisions on the basis of both unit contribution and return on investment (ROI), with investment defined as average operating assets employed. All investments in operating assets are expected to earn a minimum return of 12% before income taxes Relgis's cost of goods sold is considered to be entirely variable, however, its administrative expenses do not depend on volume Selling expenses are a mixed cost with one-third attributed to sales volume. The 2019 operating statement for Reigis follows. The division's operating assets employed were $248,250,000 at November 30, 2019, unchanged from the year before. REIGIS STEEL DIVISION Operating Statement For the Year Ended November 10, 2015 (osoitted) Sales revenue Less expenses Cost of goods sold $69.00 inistrative expenses 14.00 Selling expenses 11,700 Income from operations before tax $ 40,00 Required: 1. Calculate Reigis Steel Division's unit contribution if it produced and sold 2.500.000 units during the year ended November 30, 2019 (Round your answer to 2 decimal places.) 2. Calculate the following performance measures for 2019 for Reigis a Pretax ROI, based on average operating assets employed (Round your answer to 2 decimal places.) b. Residual income (RI), calculated on the basis of average operating assets employed. (Enter your answer in whole dollars, not in thousands.) 1 Contribution margin per unit 20 Residual income

Answer 1

$136,000,000 1 1 2 Sales revenue 3 Less: Variable costs: 4 Cost of goods sold 5 Selling expenses 6 Contribution margin 7 Units sold 8 Contribution margin per unit $69,600,000 $3,900.000 $62,500,000 2.500.000 $25.00 10 2a Return on investment 11 (Income from operations/Operating assets) 16.39% 13 2b. Residual income {Income from operations - (Operating assets X 14 Minimum required rate of return) $10,910,000 Calculations are shown below: 136000000 1 1 2 Sales revenue 3 Less: Variable costs: 4 Cost of goods sold 5 Selling expenses 6 Contribution margin 7 Units sold 8 Contribution margin per unit 69600000 =11700000*(1/3) =B2-B4-B5 2500000 =B6/B7 10 2a. Return on investment 11 (Income from operations/Operating assets) =40700000/248250000 13 26 Residual income {Income from operations - (Operating assets 14 x Minimum required rate of return) =40700000-(248250000*12%)