Deck 20: Performance Measurement, Compensation and Multinational Considerations

Question 1

Return on investment can be increased by:

A)decreasing operating assets.
B)increasing operating assets.
C)decreasing revenues.
D)Both B and C are correct.

Answer 1

A

Question 2

During the past 12 months,the Wombat Corporation had a net profit of $39 200.What is the return on investment if the amount of the investment is $280 000?

A)10%
B)12%
C)14%
D)16%

Answer 2

C

Question 3

Many common performance measures,such as customer satisfaction,rely on internal financial accounting information.

Answer 3

False

Question 4

Which statement about designing an accounting-based performance measure is FALSE?

A)The issues considered in each step are independent.
B)Management's beliefs are present during the analyses.
C)The steps need not be done sequentially.
D)Behavioural criteria are important when evaluating the steps.

Question 5

The question 'Should assets be defined as total assets or net assets?' is considered to be part of which step in designing an accounting-based performance measure?

A)Choose performance measures that align with top management's financial goals.
B)Choose the time period of each performance measure.
C)Choose a definition for each performance measure.
D)Choose a measurement alternative for each performance measure.

Question 6

Companies are increasingly using non-financial measures to evaluate performance.Since these measures do not come from the company's financial records,why are they used?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 7

The first step in designing accounting based performance measures is to choose performance measures that align with top management's financial goals.

Question 8

Designing an accounting based performance measure requires six steps.List each step.For three of the steps,describe a question that must be resolved as part of the implementation process.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 9

The return on investment is usually considered the most popular approach to incorporating the investment base into a performance measure because:

A)it blends all the ingredients of profitability into a single percentage.
B)it is similar to the company's price earnings ratio which is available daily in the financial press.
C)once determined,there is no need to use it with other measures of performance.
D)Both A and C are correct.

Question 10

Customer-satisfaction measures are an example of the:

A)financial report scorecard approach.
B)balanced scorecard approach.
C)goal-congruence approach.
D)investment success approach.

Question 11

An example of a performance measure with a long-run time horizon is:

A)direct materials efficiency variances.
B)number of new patents developed.
C)return on investment.
D)All of these answers are correct.

Question 12

Managers usually use the term 'return on investment' to evaluate:

A)the performance of a subunit.
B)a potential project.
C)the performance of a subdivision.
D)Both A and C are correct.

Question 13

Some companies present financial and non-financial performance measures for their subunits in a single report called the 'balanced scorecard'.

Question 14

The ________ method of profitability analysis recognises the two basic ingredients in profit-making: increasing profit per dollar of revenues and using assets to generate more revenues.

A)balanced scorecard
B)DuPont
C)residual-income
D)economic value added

Question 15

The CEO of Geelong Pen Company wants to establish an accounting-based performance measurement system for the company's new plant.The company has an accounting information system sufficient to support a fairly sophisticated performance measurement system.The new plant is going to be considered an investment centre since its products will be markedly different from others the company currently sells.The new plant will have no internal dealings with other plants within the company.
Required:
What are some of the key steps that should be undertaken in the establishment of an accounting-based performance measurement system?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 16

The question 'Does operating profit best measure a subunit's financial performance?' is considered to be part of which step in designing an accounting-based performance measure?

A)Choose performance measures that align with top management's financial goals.
B)Choose the time horizon of each performance measure.
C)Choose a definition for each performance measure.
D)Choose a measurement alternative for each performance measure.

Question 17

The question 'Should assets be measured at historical cost or current cost?' is considered to be part of which step in designing an accounting-based performance measure?

A)Choose performance measures that align with top management's financial goals.
B)Choose the time period of each performance measure.
C)Choose a definition for each performance measure.
D)Choose a measurement alternative for each performance measure.

Question 18

A report that measures financial and non-financial performance measures for various organisation units in a single report is called a(n):

A)unbalanced scorecard.
B)imbalanced scorecard.
C)balanced scorecard.
D)financial report scorecard.

Question 19

During the past 12 months,the Platypus Corporation had a net profit of $50 000.What is the amount of the investment if the return on investment is 20%?

A)$100 000
B)$200 000
C)$250 000
D)$500 000

Question 20

The 'balanced scorecard' in most organisations is broken down into the following categories: financial perspective,customer perspective,internal business-process perspective,and productivity perspective.

Question 21

Answer the following questions using the information below:
The top management at Groundscare Company,a manufacturer of lawn and garden equipment,is attempting to recover from a fire that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged:
$$\begin{array} { l r r r } & \text { Tractor Division } & \text { Tiller Division } & \text { Digger Division } \\\text { Sales } & \$ 5000000 & ( \mathrm { a } ) & \$ 1200000 \\\text { Net operating profit } & \$ 500000 & \$ 720000 & \$ 300000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1000000 \\\text { Return on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Return on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.2\end{array}$$

-What is the Tractor Division's return on sales?

A)0.10
B)0.15
C)0.12
D)0.20

Question 22

Answer the following questions using the information below:
The top management at Groundscare Company,a manufacturer of lawn and garden equipment,is attempting to recover from a fire that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged:
$$\begin{array} { l r r r } & \text { Tractor Division } & \text { Tiller Division } & \text { Digger Division } \\\text { Sales } & \$ 5000000 & ( \mathrm { a } ) & \$ 1200000 \\\text { Net operating profit } & \$ 500000 & \$ 720000 & \$ 300000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1000000 \\\text { Return on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Return on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.2\end{array}$$

-What is the value of the operating assets belonging to the Tiller Division?

A)$6 000 000
B)$5 000 000
C)$7 200 000
D)$7 500 000

Question 23

Answer the following questions using the information below:
The Echuca Electrical Corporation reported the following information for its Coaxial Cables Division:
$$\begin{array} { l r } \text { Revenues } & \$ 1000000 \\\text { Operating costs } & 600000 \\\text { Taxable income } & 200000 \\\text { Operating assets } & 500000\end{array}$$ Profit is defined as operating profit.

-What is the Coaxial Cables Division's investment turnover ratio?

A)2.00
B)2.50
C)3.33
D)0.80

Question 24

Answer the following questions using the information below:
The top management at Munchie Company,a manufacturer of computer games,is attempting to recover from a flood that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged:
$$\begin{array} { l r r r } & \text { Alpha Division } & \text { Beta Division } & \text { Gamma Division } \\\text { Sales } & \$ 2500000 & ( \mathrm { a } ) & \$ 1150000 \\\text { Net operating profit } & \$ 1500000 & \$ 650000 & \$ 575000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 766667 \\\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\\text { Return on sales } & ( \mathrm { e } ) & 0.10 & 0.5 \\\text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.5\end{array}$$

-What is Beta Division's investment turnover?

A)0.15
B)1.5
C)2.4
D)0.67

Question 25

Answer the following questions using the information below:
The top management at Munchie Company,a manufacturer of computer games,is attempting to recover from a flood that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged:
$$\begin{array} { l r r r } & \text { Alpha Division } & \text { Beta Division } & \text { Gamma Division } \\\text { Sales } & \$ 2500000 & ( \mathrm { a } ) & \$ 1150000 \\\text { Net operating profit } & \$ 1500000 & \$ 650000 & \$ 575000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 766667 \\\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\\text { Return on sales } & ( \mathrm { e } ) & 0.10 & 0.5 \\\text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.5\end{array}$$

-What is Alpha Division's investment turnover?

A)1.5
B)0.42
C)2.4
D)0.6

Question 26

Answer the following questions using the information below:
The top management at Groundscare Company,a manufacturer of lawn and garden equipment,is attempting to recover from a fire that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged:
$$\begin{array} { l r r r } & \text { Tractor Division } & \text { Tiller Division } & \text { Digger Division } \\\text { Sales } & \$ 5000000 & ( \mathrm { a } ) & \$ 1200000 \\\text { Net operating profit } & \$ 500000 & \$ 720000 & \$ 300000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1000000 \\\text { Return on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Return on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.2\end{array}$$

-What is the Tractor Division's investment turnover?

A)1.0
B)2.5
C)2.0
D).50

Question 27

Answer the following questions using the information below:
The top management at Groundscare Company,a manufacturer of lawn and garden equipment,is attempting to recover from a fire that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged:
$$\begin{array} { l r r r } & \text { Tractor Division } & \text { Tiller Division } & \text { Digger Division } \\\text { Sales } & \$ 5000000 & ( \mathrm { a } ) & \$ 1200000 \\\text { Net operating profit } & \$ 500000 & \$ 720000 & \$ 300000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1000000 \\\text { Return on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Return on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.2\end{array}$$

-What were the sales for the Tiller Division?

A)$4 800 000
B)$6 000 000
C)$7 750 000
D)$7 500 000

Question 28

Answer the following questions using the information below:
The Echuca Electrical Corporation reported the following information for its Coaxial Cables Division:
$$\begin{array} { l r } \text { Revenues } & \$ 1000000 \\\text { Operating costs } & 600000 \\\text { Taxable income } & 200000 \\\text { Operating assets } & 500000\end{array}$$ Profit is defined as operating profit.

-What is the Coaxial Cables Division's return on investment?

A)0.2
B)0.4
C)0.5
D)0.8

Question 29

Answer the following questions using the information below:
The top management at Munchie Company,a manufacturer of computer games,is attempting to recover from a flood that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged:
$$\begin{array} { l r r r } & \text { Alpha Division } & \text { Beta Division } & \text { Gamma Division } \\\text { Sales } & \$ 2500000 & ( \mathrm { a } ) & \$ 1150000 \\\text { Net operating profit } & \$ 1500000 & \$ 650000 & \$ 575000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 766667 \\\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\\text { Return on sales } & ( \mathrm { e } ) & 0.10 & 0.5 \\\text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.5\end{array}$$

-What is the Alpha Division's return on sales?

A)0.25
B)0.42
C)0.60
D)0.75

Question 30

Thacker Company has two regional offices.The data for each follows:
$$\begin{array} { l r r } & \text { Sydney } & \text { Melbourne } \\\text { Revenues } & \$ 580000 & \$ 596000 \\\text { Operating assets } & 4800000 & 9000000 \\\text { Net operating profit } & 2016000 & 4860000\end{array}$$
What is the return on investment for the Melbourne Division?

A)0.42
B)0.54
C)0.96
D)4.12

Question 31

Answer the following questions using the information below:
The top management at Groundscare Company,a manufacturer of lawn and garden equipment,is attempting to recover from a fire that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged:
$$\begin{array} { l r r r } & \text { Tractor Division } & \text { Tiller Division } & \text { Digger Division } \\\text { Sales } & \$ 5000000 & ( \mathrm { a } ) & \$ 1200000 \\\text { Net operating profit } & \$ 500000 & \$ 720000 & \$ 300000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1000000 \\\text { Return on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Return on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.2\end{array}$$

-What is the Tiller Division's investment turnover?

A)0.50
B)0.833
C)1.5
D)1.2

Question 32

Answer the following questions using the information below:
The top management at Groundscare Company,a manufacturer of lawn and garden equipment,is attempting to recover from a fire that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged:
$$\begin{array} { l r r r } & \text { Tractor Division } & \text { Tiller Division } & \text { Digger Division } \\\text { Sales } & \$ 5000000 & ( \mathrm { a } ) & \$ 1200000 \\\text { Net operating profit } & \$ 500000 & \$ 720000 & \$ 300000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1000000 \\\text { Return on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Return on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.2\end{array}$$

-What is the Digger Division's return on investment?

A)0.25
B)0.30
C)0.60
D)0.45

Question 33

Answer the following questions using the information below:
The Echuca Electrical Corporation reported the following information for its Coaxial Cables Division:
$$\begin{array} { l r } \text { Revenues } & \$ 1000000 \\\text { Operating costs } & 600000 \\\text { Taxable income } & 200000 \\\text { Operating assets } & 500000\end{array}$$ Profit is defined as operating profit.

-What is the Coaxial Cables Division's return on sales?

A)0.20
B)0.40
C)0.50
D)0.60

Question 34

Answer the following questions using the information below:
The top management at Munchie Company,a manufacturer of computer games,is attempting to recover from a flood that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged:
$$\begin{array} { l r r r } & \text { Alpha Division } & \text { Beta Division } & \text { Gamma Division } \\\text { Sales } & \$ 2500000 & ( \mathrm { a } ) & \$ 1150000 \\\text { Net operating profit } & \$ 1500000 & \$ 650000 & \$ 575000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 766667 \\\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\\text { Return on sales } & ( \mathrm { e } ) & 0.10 & 0.5 \\\text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.5\end{array}$$

-What is the Gamma Division's return on investment?

A)0.25
B)0.42
C)0.60
D)0.75

Question 35

Wacker Company has two regional offices.The data for each follows:
$$\begin{array} { l r r } & \text { Adelaide } & \text { Perth } \\\text { Revenues } & \$ 580000 & \$ 596000 \\\text { Operating assets } & 4800000 & 9000000 \\\text { Net operating profit } & 2016000 & 2400000\end{array}$$
What is the Adelaide Division's return on investment?

A)0.42
B)0.54
C)0.96
D)4.12

Question 36

Answer the following questions using the information below:
The top management at Munchie Company,a manufacturer of computer games,is attempting to recover from a flood that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged:
$$\begin{array} { l r r r } & \text { Alpha Division } & \text { Beta Division } & \text { Gamma Division } \\\text { Sales } & \$ 2500000 & ( \mathrm { a } ) & \$ 1150000 \\\text { Net operating profit } & \$ 1500000 & \$ 650000 & \$ 575000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 766667 \\\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\\text { Return on sales } & ( \mathrm { e } ) & 0.10 & 0.5 \\\text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.5\end{array}$$

-What is the value of the operating assets belonging to the Alpha Division?

A)$4 333 333
B)$6 000 000
C)$6 500 000
D)$7 151 800

Question 37

Answer the following questions using the information below:
The top management at Munchie Company,a manufacturer of computer games,is attempting to recover from a flood that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged:
$$\begin{array} { l r r r } & \text { Alpha Division } & \text { Beta Division } & \text { Gamma Division } \\\text { Sales } & \$ 2500000 & ( \mathrm { a } ) & \$ 1150000 \\\text { Net operating profit } & \$ 1500000 & \$ 650000 & \$ 575000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 766667 \\\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\\text { Return on sales } & ( \mathrm { e } ) & 0.10 & 0.5 \\\text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.5\end{array}$$

-What is the value of the operating assets belonging to the Beta Division?

A)$4 333 333
B)$5 952 380
C)$6 500 000
D)$7 151 800

Question 38

Tassietiger Corporation had the following information for 2017:
$$\begin{array} { l r } \text { Revenue } & \$ 900000 \\\text { Operating expenses } & 670000 \\\text { Total assets } & 1150000\end{array}$$
What is the return on investment?

A)10%
B)20%
C)25%
D)78.2%

Question 39

Answer the following questions using the information below:
The top management at Groundscare Company,a manufacturer of lawn and garden equipment,is attempting to recover from a fire that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged:
$$\begin{array} { l r r r } & \text { Tractor Division } & \text { Tiller Division } & \text { Digger Division } \\\text { Sales } & \$ 5000000 & ( \mathrm { a } ) & \$ 1200000 \\\text { Net operating profit } & \$ 500000 & \$ 720000 & \$ 300000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1000000 \\\text { Return on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Return on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.2\end{array}$$

-What is the value of the operating assets belonging to the Tractor Division?

A)$2 250 000
B)$1 750 000
C)$2 000 000
D)$2 500 000

Question 40

Answer the following questions using the information below:
The top management at Munchie Company,a manufacturer of computer games,is attempting to recover from a flood that destroyed some of their accounting records.The main computer system was also severely damaged.The following information was salvaged:
$$\begin{array} { l r r r } & \text { Alpha Division } & \text { Beta Division } & \text { Gamma Division } \\\text { Sales } & \$ 2500000 & ( \mathrm { a } ) & \$ 1150000 \\\text { Net operating profit } & \$ 1500000 & \$ 650000 & \$ 575000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 766667 \\\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\\text { Return on sales } & ( \mathrm { e } ) & 0.10 & 0.5 \\\text { Investment turnover } & ( \mathrm { f } ) & ( \mathrm { g } ) & 1.5\end{array}$$

-What were the sales for the Beta Division?

A)$4 333 333
B)$5 952 380
C)$6 500 000
D)$7 151 800

Question 41

Answer the following questions using the information below:
The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
$\begin{array} { l r r r r } & \text { Jetski Division } & \text { Boat Division } & \text { Surfboard Division } \\\text { Sales } & \$ 7500000 & ( \mathrm { a } ) & \$ 1800000 \\\text { Net operating profit } & \$ 750000 & \$ 1080000 & \$ 450000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1500000 \\\text { Retum on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Retum on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & ( \mathrm { g } ) & 1.2\end{array}$

-A major weakness of comparing two companies using only operating profits as the basis of comparison is that this method ignores differences in the size of the investment required to earn the operating profit.

Question 42

Provide the missing data for the following situations:
$$\begin{array} { | l | r | r | r | } \hline & \text { Red Division } & \text { White Division } & \text { Blue Division } \\\hline \text { Sales } & \$ ? & \$ 10000000 & \$ ? \\\hline \text { Net operating profit } & \$ 200000 & \$ 400000 & \$ 288000 \\\hline \text { Operating assets } & \$ ? & \$ ? & \$ 1600000 \\\hline \text { Return on investment } & 0.16 & 0.10 & ? \\\hline \text { Return on sales } & 0.04 & ? & 0.12 \\\hline \text { Investment turnover } & ? & ? & 1.5 \\\hline\end{array}$$
_________________________________________________________________________________________________________________________________________________________________________

Question 43

Answer the following questions using the information below:
The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
$\begin{array} { l r r r r } & \text { Jetski Division } & \text { Boat Division } & \text { Surfboard Division } \\\text { Sales } & \$ 7500000 & ( \mathrm { a } ) & \$ 1800000 \\\text { Net operating profit } & \$ 750000 & \$ 1080000 & \$ 450000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1500000 \\\text { Retum on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Retum on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & ( \mathrm { g } ) & 1.2\end{array}$

-The three alternatives for increasing return on investment include increasing assets such as receivables,increasing revenues and decreasing costs.(In all cases,assume that all other items stay the same. )

Question 44

Kase Tractor Company allows its divisions to operate as autonomous units.The operating data for 2017 follow:
$$\begin{array} { | l | r | r | r | } \hline &{ \text { Ploughs } } & { \text { Tractors } } & { \text { Combines } } \\\hline \text { Revenues } & \$ 2250000 & \$ 500000 & \$ 4800000 \\\hline \text { Accounts receivable } & 800000 & 152500 & 1435000 \\\hline \text { Operating assets } & 1000000 & 400000 & 1750000 \\\hline \text { Net operating profit } & 220000 & 60000 & 480000 \\\hline \text { Taxable income } & 165000 & 90000 & 385000 \\\hline\end{array}$$
Required:
a.Calculate the investment turnover for each division.
b.Calculate the return on sales for each division.
c.Calculate the return on investment for each division.
d.Which division manager is doing best? Why?
e.What other factors should be included when evaluating the managers?
For parts (b)and (c)income is defined as operating profit.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 45

Answer the following questions using the information below:
The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
$\begin{array} { l r r r r } & \text { Jetski Division } & \text { Boat Division } & \text { Surfboard Division } \\\text { Sales } & \$ 7500000 & ( \mathrm { a } ) & \$ 1800000 \\\text { Net operating profit } & \$ 750000 & \$ 1080000 & \$ 450000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1500000 \\\text { Retum on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Retum on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & ( \mathrm { g } ) & 1.2\end{array}$

-Investment turnover is calculated by dividing investments by revenues.

Question 46

Answer the following questions using the information below:
The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
$\begin{array} { l r r r r } & \text { Jetski Division } & \text { Boat Division } & \text { Surfboard Division } \\\text { Sales } & \$ 7500000 & ( \mathrm { a } ) & \$ 1800000 \\\text { Net operating profit } & \$ 750000 & \$ 1080000 & \$ 450000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1500000 \\\text { Retum on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Retum on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & ( \mathrm { g } ) & 1.2\end{array}$

-What is the value of the operating assets belonging to the Boat Division?

A)$7 500 000
B)$11 650 000
C)$10 800 000
D)$9 000 000

Question 47

Answer the following questions using the information below:
The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
$\begin{array} { l r r r r } & \text { Jetski Division } & \text { Boat Division } & \text { Surfboard Division } \\\text { Sales } & \$ 7500000 & ( \mathrm { a } ) & \$ 1800000 \\\text { Net operating profit } & \$ 750000 & \$ 1080000 & \$ 450000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1500000 \\\text { Retum on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Retum on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & ( \mathrm { g } ) & 1.2\end{array}$

-Return on investment is the most popular performance measure when measuring performance in an investment centre.

Question 48

Answer the following questions using the information below:
The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
$\begin{array} { l r r r r } & \text { Jetski Division } & \text { Boat Division } & \text { Surfboard Division } \\\text { Sales } & \$ 7500000 & ( \mathrm { a } ) & \$ 1800000 \\\text { Net operating profit } & \$ 750000 & \$ 1080000 & \$ 450000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1500000 \\\text { Retum on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Retum on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & ( \mathrm { g } ) & 1.2\end{array}$

-What is the value of the operating assets belonging to the Jetski Division?

A)$2 250 000
B)$1 750 000
C)$2 000 000
D)$3 750 000

Question 49

Answer the following questions using the information below:
The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
$\begin{array} { l r r r r } & \text { Jetski Division } & \text { Boat Division } & \text { Surfboard Division } \\\text { Sales } & \$ 7500000 & ( \mathrm { a } ) & \$ 1800000 \\\text { Net operating profit } & \$ 750000 & \$ 1080000 & \$ 450000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1500000 \\\text { Retum on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Retum on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & ( \mathrm { g } ) & 1.2\end{array}$

-'Return on investment' is also called the 'accrual accounting rate of return'.

Question 50

Answer the following questions using the information below:
The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
$\begin{array} { l r r r r } & \text { Jetski Division } & \text { Boat Division } & \text { Surfboard Division } \\\text { Sales } & \$ 7500000 & ( \mathrm { a } ) & \$ 1800000 \\\text { Net operating profit } & \$ 750000 & \$ 1080000 & \$ 450000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1500000 \\\text { Retum on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Retum on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & ( \mathrm { g } ) & 1.2\end{array}$

-Museum Corporation uses the investment centre concept for the museums that it manages.Select operating data for three of its museums for 2017 are as follows:
$$\begin{array} { | l | r | r | r | } \hline & { \text { Melbourne } } & { \text { Canberra } } & { \text { Brisbane } } \\\hline \text { Revenue } & \$ 600000 & \$ 750000 & \$ 900000 \\\hline \text { Operating assets } & 300000 & 250000 & 350000 \\\hline \text { Net operating profit } & 51000 & 56000 & 59000 \\\hline\end{array}$$
Required:
a.Compute the return on investment for each division.
b.Which museum manager is doing best based only on ROI? Why?
c.What other factors should be included when evaluating the managers?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 51

Answer the following questions using the information below:
The Bandage Medical Supply Company has two divisions that operate independently of one another.The financial data for the year 2017 reported the following results:
$$\begin{array} { l r r } & \text { North } & \text { South } \\\text { Sales } & \$ 3000000 & \$ 2500000 \\\text { Operating profit } & 750000 & 550000 \\\text { Taxable income } & 650000 & 375000 \\\text { Investment } & 6000000 & 5000000\end{array}$$ The company's desired rate of return is 10%.Profit is defined as operating profit.

-Which of the following is the correct formula for return on sales?

A)Investment/Profit
B)Profit/Revenue
C)Revenue/Investment
D)Profit/Investment

Question 52

Answer the following questions using the information below:
The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
$\begin{array} { l r r r r } & \text { Jetski Division } & \text { Boat Division } & \text { Surfboard Division } \\\text { Sales } & \$ 7500000 & ( \mathrm { a } ) & \$ 1800000 \\\text { Net operating profit } & \$ 750000 & \$ 1080000 & \$ 450000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1500000 \\\text { Retum on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Retum on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & ( \mathrm { g } ) & 1.2\end{array}$

-What is the Jetski Division's investment turnover?

A).50
B)2.5
C)2.0
D)1.0

Question 53

Answer the following questions using the information below:
The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
$\begin{array} { l r r r r } & \text { Jetski Division } & \text { Boat Division } & \text { Surfboard Division } \\\text { Sales } & \$ 7500000 & ( \mathrm { a } ) & \$ 1800000 \\\text { Net operating profit } & \$ 750000 & \$ 1080000 & \$ 450000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1500000 \\\text { Retum on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Retum on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & ( \mathrm { g } ) & 1.2\end{array}$

-What is the Boat Division's investment turnover?

A)1.2
B)0.833
C)0.50
D)1.5

Question 54

Answer the following questions using the information below:
The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
$\begin{array} { l r r r r } & \text { Jetski Division } & \text { Boat Division } & \text { Surfboard Division } \\\text { Sales } & \$ 7500000 & ( \mathrm { a } ) & \$ 1800000 \\\text { Net operating profit } & \$ 750000 & \$ 1080000 & \$ 450000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1500000 \\\text { Retum on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Retum on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & ( \mathrm { g } ) & 1.2\end{array}$

-What is the Surfboard Division's return on investment?

A)0.45
B)0.30
C)0.60
D)0.25

Question 55

Answer the following questions using the information below:
The Bandage Medical Supply Company has two divisions that operate independently of one another.The financial data for the year 2017 reported the following results:
$$\begin{array} { l r r } & \text { North } & \text { South } \\\text { Sales } & \$ 3000000 & \$ 2500000 \\\text { Operating profit } & 750000 & 550000 \\\text { Taxable income } & 650000 & 375000 \\\text { Investment } & 6000000 & 5000000\end{array}$$ The company's desired rate of return is 10%.Profit is defined as operating profit.

-Another name for 'return-on-investment' is the:

A)residual income.
B)accounting rate of return.
C)internal rate of return.
D)net present value.

Question 56

Answer the following questions using the information below:
The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
$\begin{array} { l r r r r } & \text { Jetski Division } & \text { Boat Division } & \text { Surfboard Division } \\\text { Sales } & \$ 7500000 & ( \mathrm { a } ) & \$ 1800000 \\\text { Net operating profit } & \$ 750000 & \$ 1080000 & \$ 450000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1500000 \\\text { Retum on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Retum on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & ( \mathrm { g } ) & 1.2\end{array}$

-Return on sales is calculated by dividing net profit by revenues.

Question 57

Perth Electronics Company allows its divisions to operate as autonomous units.The operating data for 2017 follow:
$$\begin{array} { | l | r | r | r | } \hline & { \text { TVs } } & \text { Photography } & { \text { Computers } } \\\hline \text { Revenues } & \$ 4500000 & \$ 1000000 & \$ 9600000 \\\hline \text { Accounts receivable } & 1600000 & 305000 & 2870000 \\\hline \text { Operating assets } & 2000000 & 800000 & 3500000 \\\hline \text { Net operating profit } & 440000 & 120000 & 960000 \\\hline \text { Taxable income } & 330000 & 180000 & 770000 \\\hline\end{array}$$
Required:
a.Calculate the investment turnover for each division.
b.Calculate the return on sales for each division.
c.Calculate the return on investment for each division.
d.Which division manager is doing best? Why?
e.What other factors should be included when evaluating the managers?
For parts (b)and (c)income is defined as operating profit.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 58

Answer the following questions using the information below:
The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
$\begin{array} { l r r r r } & \text { Jetski Division } & \text { Boat Division } & \text { Surfboard Division } \\\text { Sales } & \$ 7500000 & ( \mathrm { a } ) & \$ 1800000 \\\text { Net operating profit } & \$ 750000 & \$ 1080000 & \$ 450000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1500000 \\\text { Retum on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Retum on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & ( \mathrm { g } ) & 1.2\end{array}$

-What is the Jetski Division's return on sales?

A)0.10
B)0.15
C)0.20
D)0.12

Question 59

Answer the following questions using the information below:
The top management at Watersport Company, a manufacturer of water sport equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
$\begin{array} { l r r r r } & \text { Jetski Division } & \text { Boat Division } & \text { Surfboard Division } \\\text { Sales } & \$ 7500000 & ( \mathrm { a } ) & \$ 1800000 \\\text { Net operating profit } & \$ 750000 & \$ 1080000 & \$ 450000 \\\text { Operating assets } & ( \mathrm { b } ) & ( \mathrm { c } ) & \$ 1500000 \\\text { Retum on investment } & 0.20 & 0.10 & ( \mathrm {~d} ) \\\text { Retum on sales } & ( \mathrm { e } ) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & ( \mathrm { g } ) & 1.2\end{array}$

-What were the sales for the Boat Division?

A)$7 200 000
B)$9 000 000
C)$11 750 000
D)$7 500 000

Question 60

Answer the following questions using the information below:
The Bandage Medical Supply Company has two divisions that operate independently of one another.The financial data for the year 2017 reported the following results:
$$\begin{array} { l r r } & \text { North } & \text { South } \\\text { Sales } & \$ 3000000 & \$ 2500000 \\\text { Operating profit } & 750000 & 550000 \\\text { Taxable income } & 650000 & 375000 \\\text { Investment } & 6000000 & 5000000\end{array}$$ The company's desired rate of return is 10%.Profit is defined as operating profit.

-What are the respective return-on-investment ratios for the North and South Divisions?

A)0.108 and 0.075
B)0.050 and 0.150
C)0.125 and 0.110
D)0.110 and 0.125

Question 61

To evaluate overall aggregate performance,return on investment and residual income measures are more appropriate than return on sales.

Question 62

The objective of maximising their return on investment may induce managers of highly profitable divisions to reject projects that from the viewpoint of the overall organisation should be accepted.

Question 63

Answer the following questions using the information below:
The Bandage Medical Supply Company has two divisions that operate independently of one another.The financial data for the year 2017 reported the following results:
$$\begin{array} { l r r } & \text { North } & \text { South } \\\text { Sales } & \$ 3000000 & \$ 2500000 \\\text { Operating profit } & 750000 & 550000 \\\text { Taxable income } & 650000 & 375000 \\\text { Investment } & 6000000 & 5000000\end{array}$$ The company's desired rate of return is 10%.Profit is defined as operating profit.

-What are the respective residual incomes for the North and South Divisions?

A)$30 000 and $50 000
B)$50 000 and a negative $150 000
C)$150 000 and $50 000
D)$150 000 and $30 000

Question 64

Residual income is a better evaluation method than return on investment because it has a lower required rate of return for the company projects than return on investment does.

Question 65

Imputed costs are costs recognised in particular situations that are not usually incorporated in financial accounting records.

Question 66

Boomerang Products has three divisions,which operate autonomously.Their results for 2017 were as follows:
$$\begin{array} { | l | r | r | r | } \hline & { \text { Standard } } & { \text { Deluxe } } & { \text { Supreme } } \\\hline \text { Sales } & \$ 30000000 & \$ 40000000 & \$ 50000000 \\\hline \text { Cost of goods sold } & 15000000 & 25000000 & 37000000 \\\hline \text { Operating profit } & 4500000 & 4750000 & 5000000 \\\hline \text { Investment base } & 18000000 & 18555000 & 18650000 \\\hline\end{array}$$
The company's desired rate of return is 25%.
Required:
a.Calculate each division's ROI (round to three decimal places).
b.Calculate each division's residual income.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 67

Answer the following questions using the information below:
The Bandage Medical Supply Company has two divisions that operate independently of one another.The financial data for the year 2017 reported the following results:
$$\begin{array} { l r r } & \text { North } & \text { South } \\\text { Sales } & \$ 3000000 & \$ 2500000 \\\text { Operating profit } & 750000 & 550000 \\\text { Taxable income } & 650000 & 375000 \\\text { Investment } & 6000000 & 5000000\end{array}$$ The company's desired rate of return is 10%.Profit is defined as operating profit.

-Which division has the best return on investment and which division has the best residual income figure,respectively?

A)North,North
B)South,South
C)South,North
D)North,South

Question 68

Illawarra Pizzas Corporation uses the investment centre concept for the pizza bars that it manages in the city.Illawarra has a 30% required rate of return on investment in order for a branch to be viable.Select operating data for three of its branches for 2017 are as follows:
$$\begin{array} { | l | r | r | r | } \hline & \text { Acacia Street } & \text { Wattle Street } & \text { Gum Street } \\\hline \text { Revenue } & \$ 4250000 & \$ 3375000 & \$ 3750000 \\\hline \text { Operating assets } & 1750000 & 1750000 & 1250000 \\\hline \text { Net operating profit } & 480000 & 575000 & 455000 \\\hline\end{array}$$
Required:
a.Compute the return on investment for each.
b.Which branch manager is doing best based only on ROI? Why?
c.Are any of the pizza bars in danger of being closed due to lack of performance?
d.What other factors should be included when evaluating the managers?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 69

'Return on investment' is also called the 'imputed cost' of the investment.

Question 70

Hargrave Products has three divisions,which operate autonomously.Their results for 2017 were as follows:
$$\begin{array} { | l | r | r | r | } \hline & { \text { East } } & { \text { West } } & \text { International } \\\hline \text { Sales } & \$ 30000000 & \$ 40000000 & \$ 50000000 \\\hline \text { Cost of goods sold } & 15000000 & 25000000 & 37000000 \\\hline \text { Operating profit } & 4500000 & 4750000 & 5000000 \\\hline \text { Investment base } & 30000000 & 30500000 & 31000000 \\\hline\end{array}$$
The company's desired rate of return is 15%.
Required:
a.Compute each division's ROI (round to three decimal places).
b.Compute each division's residual income.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 71

Goal congruence is more likely to be promoted by using return on investment rather than residual income as a measure of a subunit's managerial performance.

Question 72

A problem with using residual income as a performance measure is that a corporation with a:

A)high investment turnover ratio always has a higher residual income than a corporation with a smaller investment turnover ratio.
B)larger dollar amount of assets is likely to have a higher residual income than a corporation with a smaller dollar amount of assets.
C)high return on sales always has a higher residual income than a corporation with a smaller return on sales.
D)None of these answers are correct.

Question 73

Costs recognised in particular situations but not incorporated in financial accounting records are:

A)imputed costs.
B)cash accounting costs.
C)opportunity costs.
D)None of these answers are correct.

Question 74

John's Mobile Phone Company uses ROI to measure divisional performance.Annual ROI calculations for each division have traditionally employed the ending amount of invested capital along with annual operating profit and net revenue.The DuPont method is generally used.The company's Phone Accessories Division had the following results for the last two years:
2016 ROI = ($2 000 000/$20 000 000)× ($20 000 000/$10 000 000)= 0.20
2017 ROI = ($2 400 000/$25 000 000)× ($25 000 000/$15 000 000)= 0.16
Corporate management was disappointed in the performance of the division for 2017,since it had made an additional investment in the division that was budgeted for a 23% ROI.
Required:
a.Discuss some factors that may have contributed to the decrease in ROI for 2017.
b.Would there have been any substantial difference if average capital had been used?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 75

Frenchs Forest Publishing Company has three divisions that operate autonomously.Their results for 2017 are as follows:
$$\begin{array} { | l | r | r | r | } \hline & { \text { Academic } } & { \text { Fiction } } & { \text { Non-fiction } } \\\hline \text { Sales } & \$ 15000000 & \$ 17000000 & \$ 20000000 \\\hline \text { Contribution margin } & 1440000 & 1700000 & 3500000 \\\hline \text { Operating profit } & 1500000 & 1200000 & 2120000 \\\hline \text { Investment base } & 7000000 & 5000000 & 14000000 \\\hline\end{array}$$
The company's desired rate of return is 20%.
Required:
a.Calculate each division's ROI.
b.Calculate each division's residual income.
c.Rank each division by both ROI and residual income.
d.Which division had the best performance in 2017? Why?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 76

Using residual income as a measure of performance rather than return on investment promotes goal congruence because residual income:

A)places importance on the reduction of underperforming assets.
B)concentrates on maximising an absolute amount of dollars.
C)calculates a percentage return rather than an absolute return.
D)concentrates on maximising the return on sales.

Question 77

Batman Abstract Company has three divisions that operate autonomously.Their results for 2017 are as follows:
$$\begin{array} { | l | r | r | r | } \hline &{ \text { Riddler } } & { \text { Joker } } & { \text { Penguin } } \\\hline \text { Sales } & \$ 5000000 & \$ 7000000 & \$ 10000000 \\\hline \text { Contribution margin } & 1440000 & 1700000 & 3500000 \\\hline \text { Operating profit } & 1000000 & 1750000 & 2520000 \\\hline \text { Investment base } & 9000000 & 10000000 & 14000000 \\\hline\end{array}$$
The company's desired rate of return is 20%.
Required:
a.Calculate each division's ROI.
b.Calculate each division's residual income.
c.Rank each division by both ROI and residual income.
d.Which division had the best performance in 2017? Why?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 78

A company which favours the residual income approach to measure performance wants managers to:

A)concentrate on maximising a percentage return.
B)maximise return on sales.
C)concentrate on maximising an absolute amount of dollars.
D)maximise the investment turnover ratio.

Question 79

Provide the missing data for the following situations:
$$\begin{array} { | l | r | r | r | } \hline & \text { River Division } & \text { Stream Division } & \text { Creek Division } \\\hline \text { Sales } & \$ ? & \$ 5000000 & \$ ? \\\hline \text { Net operating profit } & \$ 100000 & \$ 200000 & \$ 144000 \\\hline \text { Operating assets } & \$ ? & \$ ? & \$ 800000 \\\hline \text { Return on investment } & 0.16 & 0.10 & ? \\\hline \text { Return on sales } & 0.04 & ? & 0.12 \\\hline \text { Investment turnover } & ? & ? & 1.5 \\\hline\end{array}$$

Question 80

Consolidated Supply Corporation uses the investment centre concept for the service stations that it manages in the city.Consolidated has a 15% required rate of return on investment in order for a branch station to be viable.Select operating data for three of its stations for 2017 are as follows:
$$\begin{array} { | l | r | r | r | } \hline &{ \text { Pine Street } } & \text { Oak Street } & { \text { GumStreet } } \\\hline \text { Revenue } & \$ 8500000 & \$ 6750000 & \$ 7500000 \\\hline \text { Operating assets } & 3500000 & 3500000 & 2500000 \\\hline \text { Net operating profit } & 480000 & 575000 & 455000 \\\hline\end{array}$$
Required:
a.Compute the return on investment for each station.
b.Which service station manager is doing best based only on ROI? Why?
c.Are any of the service stations in danger of being closed due to lack of performance?
d.What other factors should be included when evaluating the managers?