Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osak
ID: 2518646 • Letter: M
Question
Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow:
Required:
1. For each division, compute the return on investment (ROI) in terms of margin and turnover.
2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 14%. Compute the residual income for each division.
3. Is Yokohama’s greater amount of residual income an indication that it is better managed?
Required 1
Required 2
Required 3
For each division, compute the return on investment (ROI) in terms of margin and turnover.
Required 1
Required 2
Required 3
Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 14%. Compute the residual income for each division.
Required 3
Is Yokohama’s greater amount of residual income an indication that it is better managed?
YES NO
Division Osaka Yokohama Sales $ 9,300,000 $ 23,000,000 Net operating income $ 651,000 $ 2,070,000 Average operating assets $ 2,325,000 $ 11,500,000Explanation / Answer
1) For each division, compute the return on investment (ROI) in terms of margin and turnover.
Residual income :
Osaka = 651000-(2325000*14%) = 325500
Yokohama = 2070000-(11500000*14%) = 460000
No, Yokohama's greater amount of residual income an indication that it is better managed
Osaka Yokohaman Margin 7% 9% Turnover 4 2 ROI 28% 18%