The Magnetic Imaging Division of Medical Diagnostics, Inc.

, has reported the following results for last

year's operations:

Required:

1. Compute the Magnetic Imaging Division's margin, turnover, and ROI.

2. Top management of Medical Diagnostics, Inc., has set a minimum required rate of return on
average operating assets of 25%. What is the Magnetic Imaging Division's residual income for the
year?

Ans. 1:

Imaging division’s Margin= Net operating Income/sales

= 3,000,000/25,000,000
= 12%

Turnover= Sales/Average operating sales = Sales/Average operating assets

= 25,000,000/10,000,000

= 2.5

ROI = Margin x Turnover

= 12% x 25

= 30%

Ans. 2:

Average operating Assets = 10,000,000

Net operating income= 3,000,000

Minimum required return = 25 % x 10,000,000

= 2,500,000

Residual income for the year = 500,000