Presented below is selected information for three regional divisions of Limyadi Machinery. (Amounts are in thousands.)

Instructions

a. Compute the return on investment for each division.

b. Compute the residual income for each division.

c. Assume that each division has an investment opportunity that would provide a rate of return of 17%.

1. If ROI is used to measure performance, which division or divisions will probably make the additional investment?

2. If residual income is used to measure performance, which division or divisions will probably make the additional investment?

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Divisions West North South Contribution margin Controllable margin Rp 300,000 Rp 140,000 Rp1,000,000 Rp 400,000 Rp 210,000 Rp1,500,000 10% Rp 500,000 Rp 360,000 Rp2,000,000 16% Average operating assets Minimum rate of return 13%