Week 3 CNOW Assignment.docx - Week 3 CNOW Assignment Hide or show questions 1 Calculator Mastery Problem Return on Investment margin and turnover Return

Week 3 CNOW Assignment.docx - Week 3 CNOW Assignment Hide...

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Week 3 CNOW Assignment Hide or show questions 1.CalculatorMastery Problem: Return on Investment, margin, and turnoverReturn on Investment (ROI)The manager of an investment center should be evaluated based on revenues, costs, and investments.An evaluation based on net income ignores the amount of investment the investment center required. One way to measure operating profit in relation to investment is a calculation called the return on investment.One formula for calculating return on investment is:Operating incomeInvested AssetsROI is effective because it takes into consideration the three factors under the control of an investmentcenter manager: revenues, costs, and investments. ROI measures the income (or return) earned on each dollar of investment.APPLY THE CONCEPTS: Calculating return on investmentThe divisional income statements for three divisions of the Silver Company are shown.Silver CompanyDivisional Income StatementsFor the Year Ending December 31, 2013Division ADivision BDivision CSales Revenue$960,000$900,000$320,000Operating expenses(564,500)(675,000)(170,000)Operating income before service department charges$395,500$225,000$150,000Service department charges(275,500)(135,000)(70,000)Operating income$120,000$90,000$80,000Additional financial data from the three divisions of the Silver Company are shown.Division ADivision BDivision CInvested assets$1,000,000$600,000$400,000Calculate the return on investment for each division. If required, round the ROI to the nearest hundredth of a percent (for example, 16.943% would be rounded to 16.94%). Division A Division B Division C Return on investment % % % Feedback Divide Operating income by Invested Assets and express it as a percentage, rounded to to two decimal places. Return on investment shows operating income as a percentage of investments. Return on Investment, Division A = Operating income Invested Assets = $120,000 $1,000,000 = 12% Return on Investment, Division B = $90,000
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