60.1K

Verified Solution

Link Copied!

Sheffield Industries has manufactured prefabricated houses for over $20$ years. The houses are constructed in sections to be assembled on customers' lots. Sheffield expanded into the precut housing market when it acquired Jensen Company, one of its suppliers. In this market, various types of lumber are precut into the appropriate lengths, banded into packages, and shipped to customers' lots for assembly. Sheffield designated the Jensen Division as an investment center.

Sheffield uses return on investment $($ROI$)$ as a performance measure with investment defined as average operating assets. Management bonuses are based in part on ROI. All investments are expected to earn a minimum rate of return of $18\mathrm{.}3\%.$ Jensen's ROI 'has ranged from $20\mathrm{.}9\%$ to $23\mathrm{.}0\%$ since it was acquired. Jensen had an investment opportunity in $2022$ that had an estimated ROI of $19\mathrm{.}8\%.$ Jensen management decided against the investment because it believed the investment would decrease the division's overall ROI.

Selected financial information for Jensen is presented here. The division's average operating assets were $$12,269,000$ for the year $2022.$

SHEFFIELD INDUSTRIES Jensen Division

Selected Financial Information

For the Year Ended December $31,2022$

Sales $$25,106,000$

Contribution margin

$8,973,000$

Controllable margin

$2,551,952$

Calculate the following performance measures for $2022$ for the Jensen Division. $($Round ROI to $1$ decimal place, e$.$g$.1\mathrm{.}5\%.)$

$(1)$ Return on investment $($ROI$)$

$\%$

$(2)$ Residual income

$

Answer & Explanation Solved by verified expert

See Answer