Question: Please answer ASAP and I will be sure to upvote! Wholesalers Inc. has two autonomous divisions, Alberta and Saskatchewan. Financial Information for fiscal year 2020

Please answer ASAP and I will be sure to upvote!

Wholesalers Inc. has two autonomous divisions, Alberta and Saskatchewan. Financial Information for fiscal year 2020 follows:

ALBERTA SASKATCHEWAN
Average operating assets $4,000,000 $3,250,000
Contribution margin $2,950,000 $1,800,000
Fixed expenses $2,250,000 $1,442,500
Income before income taxes $625,000 $317,500
Income tax expense $125,000 $63,500
Income taxes payable $65,000 $35,000
Interest expense $75,000 $40,000
Mortgage payable $950,000 $500,000
Net income $500,000 $254,000
Sales $4,500,000 $2,875,000
Variable expenses $1,550,000 $1,075,000

REQUIRED:

  1. Wholesalers uses ROI (return on investment) to evaluate the performance of their division managers. A large bonus is given to the division manager who achieves the highest ROI. Calculate the ROI achieved by the Alberta division and by the Saskatchewan division.
  2. Both divisions have been offered the opportunity to significantly expand their division. The expansion would require an additional investment of $500,000 of additional operating assets. It is estimated that the expansion would add $125,000 in sales and $60,000 in variable expenses to either division and there would be no change in fixed expenses or interest expense. Income taxes would increase by 8%. Which division would be likely to accept the expansion opportunity? Why? Support your answer with calculations.
  3. Wholesalers is thinking of a move from ROI to residual income as a measure of management performance. A minimum rate of return of 9% will be used. Calculate the residual income earned in fiscal 2020 by the Alberta and Saskatchewan divisions.
  4. If residual income is being used to evaluate management performance, would this have changed your answer to the expansion opportunity described in 2. above? Why or why not?

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