Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osak

Question

Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Division Osaka Yokohama Sales Net operating income Average operating assets $ 10,700,000 $ 37,000,000 $ 749,000 3,330,000 $2,675,000 18,500,e00 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 16%. Compute the residual income for each division. 3. Is Yokohama's greater amount of residual income an indication that it is better managed? Complete this question by entering your answers in the tabs below Required 1 Required 2 Required 3 For each division, compute the return on investment (ROI) in terms of margin and turnover. OsakaYokohama ROI

Explanation / Answer

1) The Return on Investment is calculated by the below table:-

In terms of Margin

(Net Operating Income/ Average Operating Assets) * 100

In terms of Turnover

(Sales/ Average Operating Assets) * 100

2. Residual Income is the excess of operating income over the target return on total assets. The calculation is shown below:-

Residual Income ($)

(A) - (B * C)

3) Return on investments is an indicator of an efficiently managed firm/ organisation and not the residual income since

Hence, Residual Income greater amount of Residual Income is not an indicator of efficiently managed divison

Particulars Division Osaka Division Yokohoma

In terms of Margin

(Net Operating Income/ Average Operating Assets) * 100

(749,000/2,675,000)*100 = 28% (3,330,000/18,500,000)*100 = 18%

In terms of Turnover

(Sales/ Average Operating Assets) * 100

(10,700,000/2,675,000)*100 = 400% (37,000,000//18,500,000)*100 = 200%

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