Reference no: EM132540350

Pool Accessories, Inc., has two divisions-Furniture and Supplies. (This is the same company as the previous exercise. This exercise can be assigned independently.) Segmented income statement information for the most recent fiscal year ended December 31 is shown as follows. Assume the Furniture division had average operating assets totaling $6,500,000 for the year, and the Supplies division had average operating assets of $1,750,000.

Pool Accessories, Inc.

Segmented Income Statements

For the Current Fiscal Year Ended December 31

                                                  Furniture Division                          Supplies Division

Sales                                            $3,000,000                           $1,000,000

Cost of Goods Sold                          1,600,000                               430,000

Gross Margin                                  $1,400,000                              $570,000

Allocated Overhead                             375,000                            125,000

Selling and Administrative Expenses           250,000                          200,000

Operating Income                                    $775,000                     $245,000

Income Tax Expense (30% rate)                 232,500                         73,500

Net Income                                           $542,500                     $171,500

Required:

Question a. Calculate ROI for each division. What does ROI tell us about each division? Indicate why this measure is useful in evaluating investment centers.