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Problem

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	10,500,000	35,000,000
Net operating income	630,000	2,800,000
Average operating assets	3,500,000	17,500,000

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?

Yes
No.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M92752932

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