Managerial Accounting

CH 11 Problem P11-44B

Requirement Two

Home furnishing department had a sales margin of 28% in both 2009 and 2010, office furniture had sales margin of 33% in both 2009 and 2010, store displays had 14% sales margin in 2008 to 2010 and health-care furnishings had a sales margin of 34% in 2009 and 32% in 2010. This means that all the three divisions had a sales margin of over 14% the highest sales margin is 34% in 2009 from the health-care furnishings department meaning that they made $0.34 on each sales dollar. Store displays had the lowest sales margin of 14% but had the highest amounts of sales but less operating incomes compared to the other department and this is most likely due to the costs of high costs associated with store displays in comparison to the other departments. Overly, all the departments are profitable.

Requirement Three

Capital turnover shows how efficiently the a division uses its assets to generate sales. The higher the capital turnover the more efficient the division was at making use of its assets to generate sales. Both office furnishings, store displays, and home furnishings had a capital turnover of less than 1.5 whilst, health-care furnishings had capital turnover rates of 2 and above and this shows that health-care furnishings was more efficient at using its assets to generate sales.

Requirement Four

Return on Investment measures the amount of income an investment center earns relative to the size of its assets. The division that has the highest ROI is the Health-Care furnishings and this is most likely because this same division has the highest capital turnover of 83% in 2009 and 64% in 2010 which is still by far the highest ROI of all the four departments. So, in conclusion all four department have been profitable in relation to its assets.

Requirement Five

In order to calculate Residual Income you need to know the amounts of operating income and the minimum acceptable income. Management defines minimum acceptable income...