The controllable margin plus the additional income, and the average operating as

Question

The controllable margin plus the additional income, and the average operating assets plus the new machine must be used in to determine the new ROI. Dax Pet Foods compiled the following information for the year for its dog division
Average operating assets $3,500,000 Controllable margin 315,000
Dax Dax Pet Foods compiled the following information for the year for its dog division
Average operating assets $3,500,000 Controllable margin 315,000
Dax The controllable margin plus the additional income, and the average operating assets plus the new machine must be used in to determine the new ROI.

Explanation / Answer

Hi,

Please find the answer as follows:

Current ROI = Controllable Margin/Average Operating Assets = 315000/3500000 = 9%

If the new machine is bought, ROI will change to = (315000 + 19500)/(3500000 + 150000) = 9.16%

Option B (It will increase to 9.16%) is correct.

Thanks.

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