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 $ 10,800,000 $ 38,000,000 Net operating income $ 648,000 $ 3,040,000 Average operating assets $ 3,600,000 $ 19,000,000 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 15%. Compute the residual income for each division. 3. Is Yokohama’s greater amount of residual income an indication that it is better managed?

Meiji lsetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow: Division Osaka Yokohama Sales 10,800,000 38,000,000 $648,000 3,040,000 Average operating assets 3,600,000 19,000,000 Net operating income Required: . 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 15%. 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 1Required 2 Required 3 For each division, compute the return on investment (ROI) in terms of margin and turnover Osaka Yokohama ROI Required 1 Required 2

Explanation / Answer

Margin = net operating income/sales Turnover = sales/average operating assets ROI           = margin * Turnover 1) Osaka margin = 648,000/10,800,000 6% turnover = 10,800,000/3,600,000 3 ROI        = 18% answer Yokohama Margin = 3,040,000/38,000,000 8% turnover = 38,000,000/19,000,000 2 ROI= 16% answer 2) Osaka Yokohama Average operating assets 3,600,000 19,000,000 Net operating income 648,000 3,040,000 Minimum required return on average assets 540000 2850000 Residual income 108,000 190,000 3) No

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