Countrywide Cable & Wyalusing Industries

Countrywide Cable & Wyalusing Industries

1)Countywide Cable Services, Inc. is organized with three segments: Metro, Suburban, and Outlying.Data for these segments for the year just ended follow.Metro Suburban OutlyingService revenue .. $1,000,000 $800,000 $400,000Variable expenses .. 200,000 150,000 100,000Controllable fixed expenses 400,000 320,000 150,000Fixed expenses controllable by others 230,000 200,000 90,000In addition to the expenses listed above, the company has $95,000 of common fixed expenses.Income-tax expense for the year is $145,000.Required:1. Prepare a segmented income statement for Countywide Cable Services, Inc. Use the contributionformat.2)Wyalusing Industries has manufactured prefabricated houses for over 20 years. The houses are constructedin sections to be assembled on customers lots. Wyalusing expanded into the precut housing marketwhen it acquired Fairmont Company, one of its suppliers. In this market, various types of lumber areprecut into the appropriate lengths, banded into packages, and shipped to customers lots for assembly.Wyalusing designated the Fairmont Division as an investment center. Wyalusing uses return on investment(ROI) as a performance measure with investment defined as average productive assets. Managementbonuses are based in part on ROI. All investments are expected to earn a minimum return of 15 percentbefore income taxes. Fairmonts ROI has ranged from 19.3 to 22.1 percent since it was acquired. Fairmonthad an investment opportunity in 20?1 that had an estimated ROI of 18 percent. Fairmonts managementdecided against the investment because it believed the investment would decrease the divisions overallROI. The 20?1 income statement for Fairmont Division follows. The divisions productive assets were$12,600,000 at the end of 20?1, a 5 percent increase over the balance at the beginning of the year.FAIRMONT DIVISIONIncome StatementFor the Year Ended December 31, 20?1(in thousands)Sales revenue . $24,000Cost of goods sold . 15,800Gross margin . $ 8,200Operating expenses:Administrative . $2,140Selling . 3,600 5,740Income from operations before income taxes . $ 2,460Required:1. Calculate the following performance measures for 20?1 for the Fairmont Division.a. Return on investment (ROI).b. Residual income.2. Would the management of Fairmont Division have been more likely to accept the investmentopportunity it had in 20?1 if residual income were used as a performance measure instead of ROI?Explain your answer.


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