Homework Answers
| Before Investment | After Investment | |||
| Sydney | Brisbane | Sydney | Brisbane | |
| Sales | $6,00,000 | $4,00,000 | $7,00,000 | $5,00,000 |
| Contribution Margin | $3,12,000 | $2,32,000 | $3,62,000 | $2,82,000 |
| Fixed Costs | $2,80,000 | $1,90,000 | $3,22,250 | $2,32,250 |
| Common Costs($70,000 in ratio of 6:4) | $42,000 | $28,000 | $40,833 | $29,167 |
| Net Income | -$10,000 | $14,000 | -$1,083 | $20,583 |
| Divisional Investments | $2,00,000 | $2,80,000 | $2,50,000 | $3,30,000 |
| ROI(Net Income / Divisional Investments) | -5.00% | 5.00% | -0.43% | 6.24% |
| Residual Income[Net Income-(Average Invested assets*15%)] | -$40,000 | -$28,000 | -$38,583 | -$28,917 |
| If the investment opportunity is to be taken by any division then it would be Brisbane division as the Residual income is less as compared to Sydney Division | ||||
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Situation: Office Supplies Ltd has a geographical structure with two divisions aligned with its two markets:...
Situation: Office Supplies Ltd has a geographical structure with two divisions aligned with its two markets:...
Situation: Office Supplies Ltd has a geographical structure with two divisions aligned with its two markets: Sydney and Brisbane. The following data is provided for the two divisions for the year 2019: Sales Contribution margin ratio Sydney $500,000 52% $280,000 $200,000 Brisbane $400,000 58% $190,000 $280,000 Fixed costs Divisional investments Common costs for the year totalled $70,000 and were allocated based on sales. The management of Office Supplies Ltd faced an investment opportunity, which would require an investment of $50,000...
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