Calculate the residual income of each distribution

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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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