Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osak
ID: 2584570 • 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:
A. For each division, compute the return on investment (ROI) in terms of margin and turnover.
B. 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.
C. Is Yokohama’s greater amount of residual income an indication that it is better managed?
Division Osaka Yokohama Sales Net operating income Average operating assets $ 10,300,000 $ 33,000,000 $721,000 $ 2,970,000 $ 2,575,000 $ 16,500,000Explanation / Answer
A. For each division, compute the return on investment (ROI) in terms of margin and turnover.
B. 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.
c) No, Yokohama’s greater amount of residual income an indication that it is better managed.
Osaka Yokohaman Margin 721000*100/10300000=7% 2970000*100/33000000=9% Turnover 10300000/2575000 = 4 33000000/16500000=2 ROI 721000*100/2575000 = 28% 2970000*100/16500000=18%