Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and
assets in their respective regions. The firm is highly decentralized and managers are
evaluated solely on divisional performance.
Corporate overhead (all fixed) is allocated to the regions based
on regional gross margin (regional revenue minus regional cost of
sales).
The following information is from Lauderdale's first year of operations:
Revenues
Cost of sales
Selling, General and
Administrative (all fixed)
Corporate overhead
Region I
$ 1,209,000
454,500
433,500
Region II
$ 1,659,000
814,500.
643,500
Region III
$ 2,259,000
1,144,500
863,500
Total
Corporation
$ 5,127,000
2,413,500
Information on the division assets in the three regions of Lauderdale Corporation follows:
Region I
Region II
Region III
$ 709,000
639,000
1,301,000
Lauderdale Corporation has a cost of capital of 8.6 percent.
Required:
a. Compute residual income for the three regions. Ignore taxes.
b. How have these regions performed?
Complete this question by entering your answers in the tabs below.
1,940,500
450,000
Required A
Required B
Compute residual income for the three regions. Ignore taxes.
Note: Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.