Presented below is selected information for three regional divisions of Glendo Company.
Divisions
North West South
Contribution margin $300,500 $499,100 $399,000
Controllable margin $150,900 $399,800 $225,500
Average operating assets $1,006,000 $1,738,261 $1,503,333
Minimum rate of return 12% 16% 8%
(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 19%.
If ROI is used to measure performance, which division or divisions will probably make the additional investment? (North, South, West, North South and West, North and South, North and West, or South and West)
If residual income is used to measure performance, which division or divisions will probably make the additional investment? (North, South, West, North South and West, North and South, North and West, or South and West)