Question

Brief Exercise 23-09 For its three investment centers, Marigold Company accumulates the following data: I II III Sales $2,062,000 $3,914,000 $3,905,000 Controllable margin 848,640 2,161,620 4,103,120 Average operating assets 4,992,000 8,006,000 12,068,000 Compute the return on investment (ROI) for each center.

Answer 1

Answer:

ROI of investment center I = 17%

ROI of investment center II = 27%

ROI of investment center III = 34%

Explanation:

Return on investment (ROI) can be calculated using the following formula:

ROI = Controllable margin / Average operating assets ……………………………… (1)

Using equation (1), we have:

ROI of investment center I = $848,640 / $4,992,000 = 0.17, or 17%

ROI of investment center II = $2,161,620 / $8,006,000 = 0.27, or 27%

ROI of investment center III = $4,103,120 / $12,068,000 = 0.34, or 34%