Exercise: Return on Investment
Chapter 11 Exercises
11-5 Return on Investment (ROI)
Provide the missing data in the following table for a distributor of Martial arts products:
11-9 Return on Investment (ROI) and Residual Income Relations
A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing information in the table below:
11-18 Return on Investment (ROI) and Residual Income
“I know headquarters wants us to add that new product line,” said Dell Havasi, manager of Billings Company’s Office Products Division. “But I want to see the numbers before I make any move. Our division’s return on investment (ROI) has led the company for three years, and I don’t want any letdown.”
Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the company’s Office Products Division for the most recent year are given below:
The company had an overall return on investment (ROI) of 15% last year (considering all divisions). The Office Products Division has an opportunity to add a new product lione that would require an additional investment in operating assets of $1,000,000. The cost and revenue characteristics of the new product line per year would be:
Required:
1. Compute the Office Products Division’s ROI for the most recent year; also compute the ROI as it would appear if the new product line is added.
2. If you were in Dell Havasi’s position, would you accept or reject the new product line? Explain
Given the reward system in place, I would reject the new line because of the decrease expected in ROI with the new product line addition. This highlights incentive plans and how compensation directly affects choices made in a decentralized operation.
3. Why do you suppose headquarters is anxious for the Office Products Division
11-5 Return on Investment (ROI)
Provide the missing data in the following table for a distributor of Martial arts products:
11-9 Return on Investment (ROI) and Residual Income Relations
A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing information in the table below:
11-18 Return on Investment (ROI) and Residual Income
“I know headquarters wants us to add that new product line,” said Dell Havasi, manager of Billings Company’s Office Products Division. “But I want to see the numbers before I make any move. Our division’s return on investment (ROI) has led the company for three years, and I don’t want any letdown.”
Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the company’s Office Products Division for the most recent year are given below:
The company had an overall return on investment (ROI) of 15% last year (considering all divisions). The Office Products Division has an opportunity to add a new product lione that would require an additional investment in operating assets of $1,000,000. The cost and revenue characteristics of the new product line per year would be:
Required:
1. Compute the Office Products Division’s ROI for the most recent year; also compute the ROI as it would appear if the new product line is added.
2. If you were in Dell Havasi’s position, would you accept or reject the new product line? Explain
Given the reward system in place, I would reject the new line because of the decrease expected in ROI with the new product line addition. This highlights incentive plans and how compensation directly affects choices made in a decentralized operation.
3. Why do you suppose headquarters is anxious for the Office Products Division
References: Garrison, R., Noreen, E., & Brewer, P. (2015). Managerial accounting (Fifteenth ed.). New York, NY: McGraw-Hill Education.