DuPont performance analysis and Residual Income analysis.
Milano Corporation has three operating divisions and requires a 12% return on all investments. Selected information is presented here.
|
Division A
|
Division B
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Division C
|
|
Revenues...................
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500,000
|
?
|
?
|
|
Operating Income.........
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$ 60,000
|
?
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$ 80,000
|
|
Operating Assets............
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$ 250,000
|
$ 600,000
|
?
|
|
Margin __________________
|
?
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12%
|
?
|
|
Turnover _______________
|
?
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1 turn
|
2 turns
|
|
ROI _____________________
|
?
|
?
|
?
|
|
Residual income
|
?
|
?
|
$ 20, 000
|
Required:
a. Calculate the missing amounts for each division.
b. Comment on the relative performance of each division.
c. Provide an example to show how residual income improves decision making at the divisional level.
a
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DuPont Performance Analysis:
|
Division A
|
Division B
|
Division C
|
|
Revenues..........................................
|
$500,000
|
|
|
|
Operating Income................................
|
$60,000
|
|
$80,000
|
|
Operating Assets.................................
|
$250,000
|
$600,000
|
|
|
Margin...........................nbsp;
|
|
12%
|
|
|
Turnover ...........................
|
|
1 turn
|
2 turns
|
|
ROI ...........................
|
|
|
|
|
Residual Income Analysis:
|
|
|
|
|
Operating Income................................
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$60,000
|
|
$80,000
|
|
Required ROI (Operating assets x 12%).....
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30,000
|
72,000
|
|
|
Residual Income..................................
|
|
|
$20,000
|
b.--------------
c.--------------