Answer:
All numbers are expressed in 1,000s
1. Calculate Reigis Steel Division’s unit contribution if it produced and sold 3,300,000 units during the year ended November 30, 2019.
Sales revenue $216,000
- variable costs: ($118,650)
- COGS ($112,350)
- selling expenses ($6,300)
contribution margin $97,350
- period costs: ($34,600)
- administrative expenses ($22,000)
- selling expenses ($12,600)
EBIT $62,750
contribution margin per unit = $97,350 / 3,300,000 units = $0.0295 ≈ $0.03 per unit
2. Calculate the following performance measures for 2019 for Reigis:
a. Pretax ROI, based on average operating assets employed.
ROI = net income / cost of investment = $62,750 / $382,250 = 0.1642 ≈ 16.42%
b. Residual income (RI), calculated on the basis of average operating assets employed.
RI = controllable margin – (average operating assets x required rate of return) = $62,750 - ($382,250 x 12%) = $62,750 - $45,870 = $16,880
