OI and Investment Decisions Jarriot, Inc., presented two years of data for its Furniture Division and its Houseware Division. Furniture Division: Year 1 Year 2 Sales $35,300,000 $38,300,000 Operating income 1,380,000 1,560,000 Average operating assets 8,110,000 8,110,000 Houseware Division: Year 1 Year 2 Sales $11,700,000 $12,800,000 Operating income 670,000 550,000 Average operating assets 5,800,000 5,800,000 At the end of Year 2, the manager of the Houseware Division is concerned about the division’s performance. As a result, he is considering the opportunity to invest in two independent projects. The first is called the Espresso-Pro; it is an in-home espresso maker that can brew regular coffee as well as make espresso and latte drinks. While the market for espresso drinkers is small initially, he believes this market can grow, especially around gift-giving occasions. The second is the Mini-Prep appliance that can be used to do small chopping and dicing chores that do not require a full-sized food processor. Without the investments, the division expects that Year 2 data will remain unchanged. The expected operating incomes and the outlay required for each investment are as follows: Espresso-Pro Mini-Prep Operating income $28,000 $15,200 Outlay 200,000 150,000 Jarriot’s corporate headquarters has made available up to $530,000 of capital for this division. Any funds not invested by the division will be retained by headquarters and invested to earn the company’s minimum required rate of return, 9 percent. Required: Round your answers to four decimal places before converting to a percentage. For example, .06349 would be rounded to .0635 and entered as "6.35" percent. 1. Compute the ROI for each investment. Espresso-Pro ROI Mini-Prep ROI 2. Compute the divisional ROI for each of the following four alternatives: a. The Espresso-Pro is added. b. The Mini-Prep is added. c. Both investments are added.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
ROI and Investment Decisions
Jarriot, Inc., presented two years of data for its Furniture Division and its Houseware Division.
| Furniture Division: | ||
| Year 1 | Year 2 | |
| Sales | $35,300,000 | $38,300,000 |
| Operating income | 1,380,000 | 1,560,000 |
| Average operating assets | 8,110,000 | 8,110,000 |
| Houseware Division: | ||
| Year 1 | Year 2 | |
| Sales | $11,700,000 | $12,800,000 |
| Operating income | 670,000 | 550,000 |
| Average operating assets | 5,800,000 | 5,800,000 |
At the end of Year 2, the manager of the Houseware Division is concerned about the division’s performance. As a result, he is considering the opportunity to invest in two independent projects. The first is called the Espresso-Pro; it is an in-home espresso maker that can brew regular coffee as well as make espresso and latte drinks. While the market for espresso drinkers is small initially, he believes this market can grow, especially around gift-giving occasions. The second is the Mini-Prep appliance that can be used to do small chopping and dicing chores that do not require a full-sized food processor. Without the investments, the division expects that Year 2 data will remain unchanged. The expected operating incomes and the outlay required for each investment are as follows:
| Espresso-Pro | Mini-Prep | |
| Operating income | $28,000 | $15,200 |
| Outlay | 200,000 | 150,000 |
Jarriot’s corporate headquarters has made available up to $530,000 of capital for this division. Any funds not invested by the division will be retained by headquarters and invested to earn the company’s minimum required
Required:
Round your answers to four decimal places before converting to a percentage. For example, .06349 would be rounded to .0635 and entered as "6.35" percent.
1. Compute the ROI for each investment.
| Espresso-Pro ROI | |
| Mini-Prep ROI |
2. Compute the divisional ROI for each of the following four alternatives:
a. The Espresso-Pro is added.
b. The Mini-Prep is added.
c. Both investments are added.
d. Neither investment is made; the status quo is maintained.
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