Reference no: EM132528052

The sales, operating income, and average operating assets for each division of Spring Fever Company are as follows:

                                       sales operating            Income average                 operating assets

Vacation Division            250,000                       35,000                            200,000

Finals Division                 750,000                     450,000                         4,000,000

More School Division           400,000                  38,000                             385,000

Question 1: Determine the rate of return on investment for each division. Round to two decimal places after the percentage. (example: 21.35%)

Question 2: Assuming an expected rate of return of 10%, what is the residual income for each division?

Friendship Greeting Cards has several divisions in a decentralized structure. The Paper Division sells card stock to the Imprint Division. The Paper Division has the following variable costs to preparing a case of card stock:

Direct Materials $26

Direct Labor 13

Variable Manufacturing Overhead 55

• The Paper manager set a transfer price using an 85% markup. The Imprint manager did not like the price, and bought 1,000 cases of paper from an outside source for $150 per case.

Question 3: How much was Paper planning to charge Imprint?

Question 4: Why did the Imprint manager buy card stock from an outside source?

Question 5: Did Friendship Greeting Cards gain or lose money as a result of the Imprint manager's decision? How much money did Friendship gain or lose?