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Scranton Company has three operating segments. The managers of each segment have decision-making authority regarding pricing, cost control and asset investment. The following information is available for the three segments for the third quarter of 2014:
Alpha
Beta
Delta
Revenues
$790,000
$1,245,000
$990,000
Operating Expenses
$560,000
$960,000
$700,000
Invested Assets
$1,600,000
$2,000,000
$2,080,000
Number of Transactions
120,000
150,000
130,000
Desired Minimum ROI
12.0%
The company has a centralized accounting system. For financial reporting purposes, accounting department costs and common corporate costs are allocated to the segments as follows:
Accounting Department (number of transactions)
$60,000
Corporate Headquarters' Costs (per revenue dollar)
$810,000
REQUIRED:
Part 1: Prepare a report showing the operating incomes of the three segments for performance evaluate purposes
Part 2: Identify the most successful segment according to each of the following measurements: (Show supporting calculations.)
Segment profit margin
Segment return on investment
Segment residual income
Part 3: Which of the measurements in Part 2 would you recommend for comparing the performance of the segments? Why?
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