Provide an example to show how residual income improves decision making at the divisional level.


Question Description:

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Investment center analysis; ROI and residual income Milano Corporation has three operating divisions and requires a 12% return on all investments. Selected information is presented here: Division A Division B Division C Revenues $500,000 ? ? Operating income $60,000 ? $80,000 Operating assets $250,000 $600,000 ? Margin ? 12% ? Turnover ? 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.

Answer

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