Three divisions of Dalton Limited, a small luxury resort, offer guests a variety of additional services, each which is treated as a separate division for reporting and control purposes. Each division has its own manager. Sales and operating details for the most recent year are shown below for each division:
Sales
Average operating assets
Operating income
Minimum required rate of return
Tours
$244,000
$ 48,800
$ 12,200
7%
Dining
$316,000
$152,200
$ 15,880
7%
Wellness
$399,000
$127,600
$ 19,200
7%
Required:
1. Compute the ROI for each division, using the formula stated in terms of margin and turnover ratio.
Note: Round your final answers to 2 decimal places.
Tours
Dining
Wellness
ROI
%
%
%
2. Compute the residual income for each division.
Residual income
Tours
Dining
Wellness
3. Assume that each division is presented with an investment opportunity that would yield a rate of return of 12%.
a. If performance is being measured by ROI, which division or divisions will probably accept the opportunity?
Tours
Dining
Wellness
b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity?
Tours
Dining
Wellness