EXERCISE 12-12 (30 MINUTES)

1. ROI computations:

ROI = Margin × Turnover

Net operating income Sales

= ×

Sales Average operating assets

Division A:

$600,000 $12,000,000

ROI = ×

$12,000,000 $3,000,000

= 5% × 4 = 20%

Division B:

$560,000 $14,000,000

$14,000,000 $7,000,000

= 4% × 2 = 8%

Division C:

$800,000 $25,000,000

$25,000,000 $5,000,000

= 3.2% × 5 = 16%