Solution-What does ROI tell us about each division

What does ROI tell us about each division

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Reference no: EM132974750

Question - Pool Accessories, Inc., has two divisions-Furniture and Supplies. Segmented income statement information for the most recent fiscal year ended December 31 is shown as follows. Assume the Furniture division had average operating assets totaling $6,500,000 for the year, and the Supplies division had average operating assets of $1,750,000.

Pool Accessories, Inc. Segmented Income Statements For the Current Fiscal Year Ended December 31 (dollar amounts are in thousands)
	Furniture Division	Supplies Division
Sales	$3,000,000	$1,000,000
Cost of Goods Sold	1,600,000	430,000
Gross Margin	$1,400,000	$570,000
Allocated Overhead	375,000	125,000
Selling and Administrative Expenses	250,000	200,000
Operating Income	$775,000	$245,000
Income Tax Expense (30% rate)	232,500	73,500
Net Income	$542,500	$171,500

Required -

a. Calculate ROI for each division.

b. What does ROI tell us about each division?

c. Indicate why this measure is useful in evaluating investment centers.

Reference no: EM132974750

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What does ROI tell us about each division

Reference no: EM132974750

Reference no: EM132974750

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