Boreal Bikes evaluates its two divisions at a required return of 12 % on average operating assets. Road: operating income 360,000, average operating assets 2,000,000. Trail: operating income 275,000, average operating assets 2,500,000. Compute each division’s ROI (as a percentage to two decimals) and residual income (in dollars; a shortfall is negative).
Boreal Bikes evaluates its two divisions at a required return of 12 % on average operating assets. Road: operating income 360,000, average operating assets 2,000,000. Trail: operating income 275,000, average operating assets 2,500,000. Compute each division’s ROI (as a percentage to two decimals) and residual income (in dollars; a shortfall is negative).
Answer
Road ROI % → 18 · Road residual income → 120000 · Trail ROI % → 11 · Trail residual income → -25000
Cells - Road ROI % · ±0.05 - Road residual income · ±0 - Trail ROI % · ±0.05 - Trail residual income · ±0 ROI = operating income ÷ average operating assets: Road 360,000 ÷ 2,000,000 = 18.00 %; Trail 275,000 ÷ 2,500,000 = 11.00 %. RI = income − 12 % × assets: Road 360,000 − 240,000 = 120,000; Trail 275,000 − 300,000 = −25,000. Excel: `=B2/B3` and `=B2-0.12*B3` with income in row 2 and assets in row 3.
Hermanson Vol 2 ch 25 (controllability, responsibility reports, management by exception, ROI / RI); Heisinger & Hoyle §11.4–11.5; OpenStax Accounting v2 §9.4