Solution-Calculate the residual income of each distribution

Calculate the residual income of each distribution

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Reference no: EM133094935

Question - Blossom Décor sells home décor items through three distribution channels-retail stores, the Internet, and catalog sales. Each distribution channel is evaluated as an investment center. Selected results from the latest year are as follows:

	Retail Stores	Internet	Catalog Sales
Sales revenue	$9,900,000	$3,850,000	$3,000,000
Variable expenses	3,850,000	1,400,000	1,700,000
Direct fixed expenses	4,350,000	900,000	1,100,000
Average assets	7,850,000	3,850,000	1,950,000
Required rate of return	12%	12%	12%

Required -

(a) Calculate the current residual income for each distribution channel.

(b) The corporate office is giving the managers of each channel the option of a customer relationship management system that will allow the managers to gather data about their customers and be more effective in their marketing efforts. The system will cost $700,000 and is expected to generate $145,000 in additional annual segment margin. Calculate the residual income of each distribution channel assuming it purchases the new customer relationship management system.

Reference no: EM133094935

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Calculate the residual income of each distribution

Reference no: EM133094935

Reference no: EM133094935

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