Reference no: EM132507608

Question 1: How do you Compute the residual income for each division. (Loss amounts should be indicated by a minus sign.)?

Information given:

Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the three divisions are as follows:

                                                                   Division A               Division B                      Division C

Sales revenue                                    $ 1,255,000            $ 920,000                  $ 898,000

Cost of goods sold                             776,000                    675,000                     652,000

Miscellaneous operating expenses              64,000             52,000                        53,100

Interest and taxes                                 48,000              41,000                       41,500

Average invested assets                           8,300,000           1,930,000             3,215,000

• Wescott is considering an expansion project in the upcoming year that will cost $5 million and return $450,000 per year. The project would be implemented by only one of the three divisions.