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What does roi tell us about each division

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Reference no: EM133532758

Question: Pool Accessories, Inc., has two divisions-Furniture and Supplies. (This is the same company as the previous exercise. This exercise can be assigned independently.) 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
  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. What does ROI tell us about each division? Indicate why this measure is useful in evaluating investment centers.

Reference no: EM133532758

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