You are a consultant hired to advise ABC Limited on ROI and help with decision making
for additional order. The company has provided you following information:
Particulars Amount (Rs.)
Sales (2,00,000 units at Rs. 20) 4,000,000
Less: Variable costs @ Rs. 15 per unit 3,000,000
Contribution Margin 1,000,000
Less: Fixed costs 750,000
Division Profit 250,000
The amount of division investment is Rs. 15,00,000 and the target rate of return on
investment is 20%
a. Based on the information provided calculate ROI and Residual income of ABC Limited
b. Assume that division has offer to sell 50,000 units at Rs. 25 per unit. If additional order is accepted, the variable cost per unit will remain the same. However, fixed costs would increase by Rs. 250,000. A further additional investment of Rs. 10,00,000 would also be required. Analyze the impact on residual income.
CAclubindia
