CMA Intermediate · Management Accounting · Divisional Performance Measurement
Godavari Pharma's Division S has capital employed of ₹50,00,000 and a cost of capital of 14%. To have a residual income of ₹2,00,000, what operating profit must it earn?
The division must earn operating profit of ₹9,00,000. The capital charge is 14% of ₹50,00,000, which is ₹7,00,000, and the target residual income of ₹2,00,000 must be earned on top of that charge.
- A₹7,00,000
- B₹9,00,000Correct
- C₹5,00,000
- D₹2,00,000
Explanation
Capital charge = 14% × 50,00,000 = ₹7,00,000. Required profit = charge + target RI = 7,00,000 + 2,00,000 = ₹9,00,000. ₹7,00,000 gives zero RI.
Did you get it right without looking?
One question tells you little. A timed set on Divisional Performance Measurement shows your real accuracy, how long you take and where you lose marks.
More Divisional Performance Measurement questions
- Kaveri Textiles' Division P earns operating profit of ₹24,00,000 on capital employed of ₹1,00,00,000 (ROI 24%). Cost of capital is 16%. It c…
- Himalaya Cements' Division R has operating profit of ₹30,00,000 before depreciation of ₹6,00,000, so profit after depreciation is ₹24,00,000…
- Division D of Himalaya Components has sales of ₹2,40,00,000, operating profit margin of 10% and capital employed of ₹1,20,00,000. Management…
- A division has sales of ₹40,00,000, operating profit of ₹4,00,000 and capital employed of ₹20,00,000. Using the DuPont approach, what are it…
- Division Q of Narmada Foods has capital employed of ₹60,00,000 and a target return of 12%. Its residual income is ₹3,60,000. What is its ROI…
- Division C of Narmada Foods has capital employed of ₹80,00,000 and ROI of 22%. The company's cost of capital is 16%. A new project costing ₹…