Posted: April 21st, 2016

Compute the company’s residual income for the year???

Flexible Budget
For the Month Ended December 31
Budgeted meals (q) …………………………………………………….. 21,000
Revenue (\$3.80 q) ………………………………………………………. \$79,800
Expenses:
Raw Materials (2.30q) ……………………………………………….. 48,300
Wages and Salaries (\$6,400 + \$0.25q) ……………………….. 11,650
Utilities (\$2,100 + \$0.50q) …………………………………………. 3,150
Facility Rent (\$3,800) ………………………………………………… 3,800
Insurance (\$2,600) ……………………………………………………… 2,600
Miscellaneous (\$700 + \$0.10q) …………………………………… 2,800
Total expenses ………………………………………………………………. 72,300
Net operating income ……………………………………………………. \$ 7,500
Required:
1. Prepare a report showing the company’s activity variances for December.
2. Which of the activity variances should be of concern to management? Explain

7. Residual Income
Midlands Design Ltd. Of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of £400,000 on sales of £2,000,000. The company’s average operating assets for the year were £2,200,000 and its minimum required rate of return was 16%. (The currency in the United Kingdom is the pound, denoted by £)
Required:
Compute the company’s residual income for the year.

8. Effects of Changes in Sales, Expenses, and Assets on ROI
BusServ.com Corporation provides business-to-business services on the Internet. Data concerning the most recent year appear below:
Sales …………………………………………………. \$8,000,000
Net operating income ………………………. \$800,000
Average operating assets …………………. \$3,200,000
Required:
Consider each question below independently. Carry out all computations to two decimal places.
1. Compute the company’s return on investment (ROI).
2. The entrepreneur who founded the company is convinced that sales will increase next year by 150% and that net operating income will increase by 400%, with no increase in average operating assets. What would the company’s ROI?
3. The Chief Financial Officer of the company believes a more realistic scenario would be a \$2 million increase in sales, requiring an \$800,000 increase in average operating assets, with a resulting \$250,000 increase in net operating income. What would be the company’s ROI in this scenario?

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