Reference no: EM133046351

Question - Carla Vista Decor sells home decor 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	$9,980,000	$3,930,000	$3,120,000
Variable expenses	3,930,000	1,480,000	1,780,000
Direct fixed expenses	4,430,000	980,000	1,180,000
Average assets	7,930,000	3,930,000	1,740,000
Required rate of return	10%	10%	10%

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 $780,000 and is expected to generate $153,000 in additional annual segment margin.

Calculate the residual income of each distribution channel assuming it purchases the new customer relationship management system.