Johnson Company has three operating segments. The managers of each segment have decision-making authority regarding pricing, cost control and asset investment. The following information is available for the three segments for the third quarter of 2014:
|
|
Alpha
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Beta
|
Delta
|
|
Revenues
|
|
$790,000
|
$1,245,000
|
$990,000
|
|
Operating Expenses
|
|
$560,000
|
$960,000
|
$700,000
|
|
Invested Assets
|
|
$1,600,000
|
$2,000,000
|
$2,080,000
|
|
Number of Transactions
|
|
120,000
|
150,000
|
130,000
|
|
Desired Minimum ROI
|
|
12.0%
|
12.0%
|
12.0%
|
The company has a centralized accounting system. For financial reporting purposes, accounting department costs and common corporate costs are allocated to the segments as follows:
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Accounting Department (number of transactions)
|
$60,000
|
|
Corporate Headquarters' Costs (per revenue dollar)
|
$810,000
|
REQUIRED:
Part 1: Prepare a report showing the operating incomes of the three segments for performance evaluate purposes.
Part 2: Identify the most successful segment according to each of the following measurements: (Show supporting calculations.)
- Segment profit margin
- Segment return on investment
- Segment residual income
Part 3: Which of the measurements in Part 2 would you recommend for comparing the performance of the segments? Why?