Reference no: EM133102126

Question - Wildhorse 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	$10,000,000	$3,950,000	$3,160,000
Variable expenses	3,950,000	1,500,000	1,800,000
Direct fixed expenses	4,450,000	1,000,000	1,200,000
Average assets	7,950,000	3,950,000	1,730,000
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 $800,000 and is expected to generate $155,000 in additional annual segment margin.

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