Item ROI Margin
Anticipated change
New amount
Responsible for generating profits and making investments in their store. The following data is provided for the 2019 operations for one of the stores: Boston store Sales $902,000 Net operating income $59,000 Average operating assets $417,000 Minimum required rate of return 12%
Residual income
ii. If the store manager's performance is evaluated on the basis of ROI, would you expect them to accept or reject plan one? Why?
Required: (a) Calculate the store's ROI for 2019.
iii. If the store manager's performance is evaluated on the basis of residual income, would you expect them to accept or reject plan one? Why?
(b) Calculate the store's margin for 2019.
b. In the second plan, the store would increase its average operating assets by 10% and increase its sales by $48,000, and as a result, increase its net operating income by $5,200. i. If it adopts the second plan, fill in the Anticipated change column to state whether each of the following would increase, decrease, or stay the same, and use the New amount column to show what the amounts for each one would be under plan two: Item Anticipated change New amount ROI Margin Turnover Residual income
(c) Calculate the store's turnover for 2019.
(d) Calculate the store's residual income for 2019.
ii. If the store manager's performance is evaluated on the basis of ROI,
(e) The store manager is considering two different plans for 2020. Consider each plan independently. In the first plan, the store would increase its operating expenses by $16,500. i. If it adopts the first plan, fill in the Anticipated change column to state whether each of the following items would increase, decrease, or stay the same, and use the New amount column to show what the amounts for each one would be under plan one:
iii. If the store manager's performance is evaluated on the basis of residual income, would you expect them to accept or reject plan two? Why?
