Luke Company has three divisions: Peak, View, and Grand. The company has a hurdle rate of 5.01 percent. Selected operating data for the three divisions follow: Peak View Grand Sales revenue$332,000$233,000$311,000 Cost of goods sold 204,000 116,000 183,000 Miscellaneous operating expenses 36,000 30,000 33,000 Average invested assets 1,310,000 920,000 1,105,000 Required: 1. Compute the return on investment for each division. 2. Compute the residual income for each division.

Answer and Explanation:

The computation is shown below:

1. The return on investment is  

As we know that  

Return on Investment = Net operating profit ÷ average invested assets × 100

But before that the Net Operating Profit should be determined  

Particulars               Peak           View                  Grand

Sales revenue       $332,000    $233,000           $311,000

Less: Cost of

goods sold          ($204,000)   ($116,000)            ($183,000)

Miscellaneous

operating Expenses ($36,000)   ($30,000)             ($33,000)

Net Profit              $92,000       $87,000               $95,000

Now

Return on Investment is

For peak, it is

= $92,000 ÷ $1,310,000

= 7.02%

for view, it is

= $87,000 ÷ $920,000

= 9.46%

for grand, it is

= $95,000 ÷ $1,105,000

= 8.60%

2. The residual income is  

We know that  

Residual Income = Net operating income - (Minimum required rate of return ×  average invested assets)

For Peak, it is

= ($92,000 - (5.01% of $1,310,000)

= $26,369

For view, it is  

= ($87,000 - (5.01% of $920,000)

= $40,908

And, for grand, it is

= ($95,000 - (5.01% of $1,105,000)

= $39,640

answer: marginal utility of the fourth brownie is 0.

explanation: marginal utility is the addtional utility gained from the consumption of one more unit of a good. it is given by,

so, marginal utility at the 4th unit will be given by

since, the values are not given here, you can simply find marginal utility at fourth unit by subtracting total utility at 3rd unit from total utility at 4th unit.