Reference no: EM133073993

Question - Crane 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	$10,130,000	$4,080,000	$3,400,000
Variable expenses	4,080,000	1,630,000	1,930,000
Direct fixed expenses	4,580,000	1,130,000	1,330,000
Average assets	8,080,000	4,080,000	1,600,000
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 $930,000 and is expected to generate $168,000 in additional annual segment margin.

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