For its three investment centers, Gerrard Company accumulates the following data

Question

For its three investment centers, Gerrard Company accumulates the following data: Sales Controllable margin Average operating assets $1,950,000 $3,980,000 $3,925,000 1,105,940 1,930,320 4,571,020 The centers expect the following changes in the next year: (1) increase sales 16%; (11) decrease costs s413,000; (III) decrease average operating assets $496,000 Compute the expected return on investment (ROI) for each center. Assume center I has a controllable margin percentage of 74%. (Round ROI to 1 decimal place, e.g. 1.5.)

Explanation / Answer

I II III Sales 2262000 3980000 3925000 ($1950000 x 1.16) Controllable margin 1673880 2343320 4571020 (74% x $2262000) ($1930320 + $413000) Average operating assets 5027000 8043000 11533000 ($12029000 - $496000) The expected return on investment 33.3% 29.1% 39.6% (Controllable margin/Average operating assets)

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