A company has two divisions Division A and B Division A Division B Total Sales $90,000,000 $7,000,000 $97,000,000 Variable expenses 75,000,000 5,500,000 80,500,000 Traceable fixed costs 13,000,000 700,000 13,700,000 Allocated common fixed costs 1,500,000 900,000 2,400,000 Average operating assets 1...

A company has two divisions: Division A and B. Division A Division B Total Sales $90,000,000 $7,000,000

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Question:

A company has two divisions: Division A and B.

	Division A	Division B	Total
Sales	$90,000,000	$7,000,000	$97,000,000
Variable expenses	75,000,000	5,500,000	80,500,000
Traceable fixed costs	13,000,000	700,000	13,700,000
Allocated common fixed costs	1,500,000	900,000	2,400,000

Average operating assets	11,300,000	2,280,000	13,580,000

The company uses a company-wide minimum rate of return of 10%. Early in 2021, an internal consulting project identified identical cost-reduction opportunities at both divisions. For each division, this would require a one-time investment of $200,000; annual variable cost reduction at each division would equal $52,000.

Q. How much is Division A's residual income before investing in any cost-reduction activities?

Q. Compute the return on investment (ROI) of new investment in Division A. (Note if the ROI is 0.12, enter 12%)
From the point of view of the company’s owners, should the Division A make the cost-reduction investment?

ROI: %