Colonial Pharmaceuticals is a small firm specializing in newproducts. It is organized into two divisions, which are based onthe products they produce. AC Division is smaller and the life ofthe products it produces tend to be shorter than those produced bythe larger SO Division. Selected financial data for the past yearis shown below. Divisional investment is as of the beginning of theyear. Colonial Pharmaceuticals uses a 9 percent cost of capital anduses beginning-of-the-year investment when computing ROI andresidual income. Ignore income taxes.
| AC Division | SO Division |
| Allocated corp. overhead | $ | 645 | | $ | 1,350 | |
| Cost of goods sold | | 3,290 | | | 6,100 | |
| Divisional investment | | 9,900 | | | 75,500 | |
| R&D | | 2,450 | | | 3,150 | |
| Sales | | 9,800 | | | 15,500 | |
| SG&A | | 835 | | | 1,080 | |
|
Required:
a. Compute divisional income for the twodivisions.
division income
ac division
so division
b. Calculate the operating margin, which isequivalent to the return on sales, for the two divisions.(Enter your answers as a percentage rounded to 2 decimalplaces (i.e., 32.16).)
operating margin
AC division %
SQ divison %
c. Calculate ROI for the two divisions.(Enter your answers as a percentage rounded to 2 decimalplaces (i.e., 32.16).)
Roi
AC divison %
So divison %
d. Compute residual income for the twodivisions. (Negative amounts should be indicated by a minussign.)
residual income for ac division So division
