ROI is effective because it takes into consideration the three factors under the control of an investment center 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 McLaren Company are shown.McLaren CompanyDivisional Income StatementsFor the Year Ending December 31, 2012Division ADivision BDivision CSales Revenue$1,947,000$1,197,000$594,000Operating expenses(1,148,730)(897,750)(314,820)Operating income before service department charges$798,270$299,250$279,180Service department charges(467,280)(177,156)(166,320)Operating income$330,990$122,094$112,860Additional financial data from the three divisions of the McLaren Company are shown.Division ADivision BDivision CInvested assets$1,100,000$665,000$450,000Calculate 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 ADivision BDivision CReturn on investment30.0918.3625.08% A APPLY THE CONCEPTS: Calculating margin and turnoverCalculate the margin and the turnover for each division. If required, round margin to the nearest tenth of a percent (for example, 14.6%) and turnover to two decimal places (for example, 0.82).Division ADivision BDivision CMargin%%%TurnoverThe division showing the highest operating profitability is Division C v.The division showing the highest operating efficiency is Division B V.FeedbackV Check My WorkFor Margin, divide Operating income by Sales Revenue and express it as a percentage, rounded to one decimal place.For Turnover, divide Sales Revenue by Invested Assets and round to two decimal places (this is NOT a percentage).APPLY THE CONCEPTS: Using margin and turnover to calculate return on investmentA second way to calculate return on investment (ROI) is Return on Investment = Margin x Turnover. Using the margins and turnovers you recorded above, calculate the return on investment for each division. If required, round the return oninvestment to the nearest hundredth of a percent (for example, 16.94%).Division ADivision BDivision CReturn on investment%%%Feedback▼ Check My WorkMultiply the Margin, calculated above, times the Turnover, also calculated above. Round to two decimal places.

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Description: ROI is effective because it takes into consideration the three factors under the control of an investment center manager: revenues, costs, and investments. ROI measures the income (or return) earned on each dollar of investment.APPLY THE CONCEPTS: C

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ROI is effective because it takes into consideration the three factors under the control of an investment center manager: revenues, costs, and investments. ROI mea: APPLY THE CONCEPTS: Calculating return on investment The divisional income statements for three divisions of the McLaren Company are shown.

ROI is effective because it takes into consideration the three factors under the control of an investment center manager: revenues, costs, and investments. ROI mea: APPLY THE CONCEPTS: Calculating return on investment The divisional income statements for three divisions of the McLaren Company are shown.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

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.

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Question

ROI is effective because it takes into consideration the three factors under the control of an investment center manager: revenues, costs, and investments. ROI measures the income (or return) earned on each dollar of investment.
APPLY THE CONCEPTS: Calculating return on investment
The divisional income statements for three divisions of the McLaren Company are shown.
McLaren Company
Divisional Income Statements
For the Year Ending December 31, 2012
Division A
Division B
Division C
Sales Revenue
$1,947,000
$1,197,000
$594,000
Operating expenses
(1,148,730)
(897,750)
(314,820)
Operating income before service department charges
$798,270
$299,250
$279,180
Service department charges
(467,280)
(177,156)
(166,320)
Operating income
$330,990
$122,094
$112,860
Additional financial data from the three divisions of the McLaren Company are shown.
Division A
Division B
Division C
Invested assets
$1,100,000
$665,000
$450,000
Calculate 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
30.09
18.36
25.08
% A

APPLY THE CONCEPTS: Calculating margin and turnover
Calculate the margin and the turnover for each division. If required, round margin to the nearest tenth of a percent (for example, 14.6%) and turnover to two decimal places (for example, 0.82).
Division A
Division B
Division C
Margin
%
%
%
Turnover
The division showing the highest operating profitability is Division C v.
The division showing the highest operating efficiency is Division B V.
Feedback
V Check My Work
For Margin, divide Operating income by Sales Revenue and express it as a percentage, rounded to one decimal place.
For Turnover, divide Sales Revenue by Invested Assets and round to two decimal places (this is NOT a percentage).
APPLY THE CONCEPTS: Using margin and turnover to calculate return on investment
A second way to calculate return on investment (ROI) is Return on Investment = Margin x Turnover. Using the margins and turnovers you recorded above, calculate the return on investment for each division. If required, round the return on
investment to the nearest hundredth of a percent (for example, 16.94%).
Division A
Division B
Division C
Return on investment
%
%
%
Feedback
▼ Check My Work
Multiply the Margin, calculated above, times the Turnover, also calculated above. Round to two decimal places.

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