Enter Shift Alt Ctrl Chapter 10 o Decentralization: Responsibility Accounting, P

ID: 2557861 • Letter: E

Question

Enter Shift Alt Ctrl Chapter 10 o Decentralization: Responsibility Accounting, Performance Evakation, and Tranfer Priing EXERCISES Exercise 10.7 ROI, Margin, Turnover Jarriot, Inc.. presented two years of data for its Furniture Division and its Houseware Division. OBJECTIN Furniture Division: Year 1 Year 2 $37,500,000 Sales Operating income Average operating assets S35,000,000 1,400,000 10,000,000 10,000,000 Houseware Division: Year 1 Year 2 Sales Operating income Average operating assets S12,000,000 600,000 5,000,000 $12,500,000 500,000 5,000,000 Renuired

Explanation / Answer

SOLUTION:

PART-1)

Espresso-Pro ROI = 27,500 / 250,000 = 11%

Mini-Prep ROI = 19,000 / 200,000 = 9.50%

PART-2)

Add Espresso-Pro

Add Mini-Prep

Add Both

Maintained Status quo

Operating Income

527,500

519,000

546,500

500,000

Operating Asset

5,250,000

5200000

5,450,000

5,000,000

ROI (Operating Income/Operating asset)

10.05%

9.98%

10.03%

10.00%

Thus, Espresso-Pro will be choosen by the management as it will provide the highest ROI