Accounting records from Division A,Alpha Manufacturing Company indicate the following:
A.(2)Compute the asset turnover (AT)for Division
A.
(3)Compute return on investment (ROI)for this division,using answers to parts (1)and (2).
(4)Compute residual income (RI)for Division
A.(5)Describe how Alpha Manufacturing would determine whether or not to invest in any particular project in the future.
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Question

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Required:
(1)Compute the profit margin for Division A.
(2)Compute the asset turnover (AT)for Division A.
(3)Compute return on investment (ROI)for this division,using answers to parts (1)and (2).
(4)Compute residual income (RI)for Division A.
(5)Describe how Alpha Manufacturing would determine whether or not to invest in any particular project in the future.
Please see Feedback for answers.
 Feedback: (1)Profit Margin = $169,500/$1,500,000 = 0.113.
(2)Asset Turnover = $1,500,000/$1,000,000 = 1.5 times.
(3)ROI = 0.113 x 1.5 = 0.1695.
(4)RI = $169,500 - (0.14 x $1,000,000)= $29,500.
(5)The current ROI is greater than the minimum rate of return.Therefore,if the estimated ROI for the new project is greater than the current rate of return,then Alpha would be wise to invest.For any rate of return lower than the current ROI,Alpha would not benefit from the new project.

Accounting Records from Division A,Alpha Manufacturing Company Indicate the Following