Problem
Pool Accessories, Inc., has two divisions-Furniture and Supplies. Assume for both divisions that the tax rate is 30 percent, and the cost of capital is 8%. The following segmented financial information is for the most recent fiscal year ended December 31.
|
|
Furniture Division
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Supplies Division
|
|
Sales
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$3,000,000
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$1,000,000
|
|
Cost of goods sold
|
1,600,000
|
430,000
|
|
Allocated overhead
|
375,000
|
125,000
|
|
Selling and administrative expenses
|
250,000
|
200,000
|
|
Average net operating assets
|
$8,500,000
|
2,100,000
|
• Using Residual Income as the measure of profitability, which division is most profitable?