1 answer

Wellness Pharmaceuticals is a small firm specializing in new products. It is organized into two divisions,...

Question:

Wellness Pharmaceuticals is a small firm specializing in new products. It is organized into two divisions, based on the products they produce. BD Division is smaller and the life of the products it produces tend to be shorter than those produced by the larger PM Division. Selected financial data for the past year is shown below. Divisional investment is as of the beginning of the year. Wellness Pharmaceuticals uses a 9 percent cost of capital and beginning-of-the-year investment when computing ROI and residual income. Ignore income taxes.e building. The following information (in $000s) appears in the accounting records for last year:
     BD Division PM Division
Allocated Corporate Overhead    $660 $1,980
Cost of Goods Sold 3,520 7,700
Divisional Investment 9,900 88,000
Research and Development 2,200 3,960
Sales 8,800 2,200
SG&A      770 1,683
REQUIRED
3. Calculate ROI for the two divisions.
4. Compute residual income for the two divisions.

Answers

ROI-

BD division : 16.67%

PM division : (14.91%)

Residual income :

BD division : 759000

PM division : (21043000)

.

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