For many years, Miner Industries has manufactured prefabricated garden sheds where the sheds are constructed in sections to be assembled on customers$’$ property. The company expanded into the pre$-$fabricated shed market when it acquired V$-$Shed Company. V$-$Shed pre$-$cuts various types of lumber into the appropriate lengths, packages them, and ships the product to customers for assembly. Miner decided to maintain V$-$Shed$’$s separate identity and, thus, established the V$-$Shed Division as an investment center of Miner.

Miner uses return on average investment $($ROI$)$ as a performance measure, with the investment defined as $“$operating assets employed.$”$ All investments in operating assets are expected to earn a minimum return of $12\%$ before income taxes. V$-$Shed$’$s ROI has ranged from $15\%$ to $18\%$ since it was acquired.

V$-$Shed$’$s operating statement for the year just ended is presented below. The division$’$s $“$operating assets employed$”$ were $$5,250,000$ at the end of the year, a $5\%$ increase over the balance at the end of the previous year.

V$-$Shed Division Operating Statement

For the Year Ended December $31$

$($$$000$ omitted$)$

Sales revenue $$10,000$

Cost of goods sold $6,500$

Gross profit $3,500$

Operating expenses

Administrative $$1,200$ 

Selling $1,5002,700$

Income from operations before income taxes $$800$

Calculate the following performance measures for the year just ended for the V$-$Shed Division of

Miner Industries:

a$.$ Return on average investment in operating assets employed $($ROI$).$

Round percent to one decimal place.

b$.$ Residual income calculated on the basis of average operating assets employed.

Round amount to the nearest dollar.

 

Answer rating: 100% (QA)

a Return on Average Investment ROI ROI Income from Operations Ave... View the full answer