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Calculate the residual income for each division

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Question - Bryson Ltd specialises in golf equipment and has two divisions - (1) the Golf Clubs Division and (2) the Golf Ball Division.

The following information relates to the two divisions:

 

Golf Clubs Division

Golf Ball Division

Sales

$20,000,000

$12,000,000

Variable Costs

$10,000,000

$4,800,000

Fixed Costs

$6,000,000

$2,800,000

Investment

$24,000,000

$32,000,000

Bryson Ltd has a required rate of return of 15%.

Required -

a) Calculate the return on investment (ROI) for each division.

b) Calculate the residual income (RI) for each division.

c) Taking into consideration your calculations in 2a, if divisional performance is assessed based on ROI, which division(s) would go ahead with the new investment?

d) Taking into consideration your calculations in 2b, if divisional performance is assessed based on RI, which division(s) would go ahead with the new investment?

e) Recommend key non-financial measures Bryson Ltd could implement in their performance measurement system.

Reference no: EM133073509

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