When investment turnover increased by 50% and ROS decreased by 30%, the ROI would

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Responsibility Acctg, Transfer Pricing & GP Analysis

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MANAGEMENT ADVISORY SERVICESResponsibility Accounting & Transfer Pricing

RETURN ON INVESTMENT

Return on Investment Computation

Based on Operating Income

1. The following selected data pertain to the belt division of Allen

Corp. for last year:

Sales $500,000

Average operating assets $200,000

Net operating income $80,000

Turnover 2.5

Minimum required return 20%

How much is the return on investment? (M)

a. 40%c. 20%

b. 16%d. 15% AICPA, Adapted

2. Harstin Corporation has provided the following data:

Sales $625,000

Gross margin 70,000

Net operating income 50,000

Stockholders' equity 90,000

Average operating assets 250,000

Residual income 20,000

The return on investment for the past year was: (M)

a. 28%.c. 36%.

b. 20%.d. 8%. G & N 9e

Investment

3. Apple Division of the American Fruit Co. had the following statistics

for 2002:

Assets available for use$1,000,000

Residual income100,000

Return on investment15%

If the manager of Apple Division is evaluated based on return on

investment, how much would she be willing to pay for an

investment that promises to increase net segment income by

$50,000? (M)

a. $50,000c.$1,000,000

b.$333,333d.$500,000 Barfield

Required Peso Sales

4.The manager of the Strong Division of Powers Company expects the

following results in 2003 (pesos in millions);

SalesP49.60

Variable costs

(60%)

29.76

Contribution marginP19.84

Fixed costs 12.00

ProfitP 7.84

Investment

Plant equipmentP19.51

Working capital14.88P34.39

ROI (P7.84/P34.39)22.80%

The division has a target ROI of 30%, and the manager has asked

you to determine how much sales volume the division would need

to reach. He states that the sales mix is relatively constant so

variable costs should be close to 60% of sales, fixed cost and plant

and equipment should remain constant, and working capital (cash,

receivables and inventories) should vary closely with sales in the

percentage reflected above.

The peso sales that the division needs in order to reach the 30%

ROI target is (D)

A.P19,829,032.C.P44,373,871

B.P57,590,322D.P59,510,000Pol Bobadilla

Dupont Model

Sensitivity Analysis

5.If the operating income margin of 0.3 stayed the same and the

operating asset turnover of 5.0 increased by 10 percent, the ROI

(M)

a.increase by 10 percentd.remain the same

b.decrease by 10 percente.increase to 1.5.

c.increase by 15 percentH & M

6.If the investment turnover increased by 20% and ROS decreased by

30%, the ROI would (M)

a.Increase by 20%.c.Increase by 4%.

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