How do I determine CM for the following Consolidated Industries is a diversified manufacturer with business units organized as divisions, including the Reigis Steel Division. Consolidated monitors its divisions on the basis of both unit contribution and return on investment (ROI), with investment defined as average operating assets employed. All investments in operating assets are expected to earn a minimum return of 11% before income taxes.

Reigis's cost of goods sold is considered to be entirely variable; however, its administrative expenses do not depend on volume. Selling expenses are a mixed cost with one-third attributed to sales volume. The 2019 operating statement for Reigis follows. The division's operating assets employed were $164,500,000 at November 30, 2019, unchanged from the year before.

REIGIS STEEL DIVISIONOperating StatementFor the Year Ended November 30, 2019(000s omitted) Sales revenue $86,000 Less expenses: Cost of goods sold$44,000 Administrative expenses 9,000 Selling expenses 7,200 60,200 Income from operations, before tax $25,800

Required:

1. Calculate Reigis Steel Division's unit contribution if it produced and sold 2,000,000 units during the year ended November 30, 2019. (Round your answer to 2 decimal places.)

2. Calculate the following performance measures for 2019 for Reigis:

a. Pretax ROI, based on average operating assets employed. (Round your answer to 2 decimal places.)

b. Residual income (RI), calculated on the basis of average operating assets employed. (Enter your answer in whole dollars, not in thousands.)

3. Reigis management is presented the opportunity to invest in a project that would earn an ROI of 12%. Reigis is likely to:

multiple choice

accept the project because ROI is higher than the required rate of return.

reject the project because the ROI would lower the current overall ROI.

accept the project because positive ROI means a positive dollar value of return.

reject the project because it poses too much risk.

pur-new-sol

Related Questions