Consolidated Industries is a diversified manufacturer with business units organized as divisions, including the Reigis Steel Division.
Question:
Reigiss cost of goods sold is considered to be entirely variable; however, its administrative expenses do not depend on volume. Selling expenses are a mixed cost with one-third attributed to sales volume. The 2019 operating statement for Reigis follows. The divisions operating assets employed were $80,750,000 at November 30, 2019, unchanged from the year before.
Required
1. Calculate Reigis Steel Divisions unit contribution if it produced and sold 1,500,000 units during the year ended November 30, 2019.
2. Calculate the following performance measures for 2019 for Reigis:
a. Pretax ROI, based on average operating assets employed.
b. Residual income (RI), calculated on the basis of average operating assets employed.
3. Reigis management is presented the opportunity to invest in a project that would earn an ROI of 10%. Is Reigis likely to accept the project? Why or why not?
4. Identify several items that Reigis should control if it is to be fairly evaluated as a separate investment center within Consolidated Industries using either ROI or RI performance measures.
Step by Step Answer:
Cost Management A Strategic Emphasis
ISBN: 9781259917028
8th Edition
Authors: Edward Blocher, David F. Stout, Paul Juras, Steven Smith