Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and...

 

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Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales). The following information is from Lauderdale's first year of operations: Region I $1,211,000 455,500 436,500 Region II $1,661,000 815,500 646,500 Region III $ 2,261,000 1,145,500 866,500 Total Corporation $5,133,000 2,416,500 1,949,500 454,000 Revenues Cost of sales Selling, General and Administrative (all fixed); Corporate overhead Information on the division assets in the three regions of Lauderdale Corporation follows: Region I $ 711,000 Region II 641,000 1,304,000 Region III Lauderdale Corporation has a cost of capital of 8.6 percent. Required: a. Compute residual income for the three regions. Ignore taxes. b. How have these regions performed? Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales). The following information is from Lauderdale's first year of operations: Region I $1,211,000 455,500 436,500 Region II $1,661,000 815,500 646,500 Region III $ 2,261,000 1,145,500 866,500 Total Corporation $5,133,000 2,416,500 1,949,500 454,000 Revenues Cost of sales Selling, General and Administrative (all fixed); Corporate overhead Information on the division assets in the three regions of Lauderdale Corporation follows: Region I $ 711,000 Region II 641,000 1,304,000 Region III Lauderdale Corporation has a cost of capital of 8.6 percent. Required: a. Compute residual income for the three regions. Ignore taxes. b. How have these regions performed?

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