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Return on Investment (ROI). Valdez Company has two divisionsAppliances and Tools. (This is the same company as the previous exercise. This exercise...
Return on Investment (ROI). Valdez Company has two divisions—Appliances and Tools. (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 Appliances division had average operating assets totaling $6,500,000 for the year, and the Tools division had average operating assets of $1,750,000.
Valdez Company
Segmented Income Statements for the current Fiscal Year Ended December 31
(Dollar amounts are in thousands)
---------------------------------------------- Appliances Division ---------------------------- Tools Division
Sales 3,000,000 ----- 1,000,000
COGS 1,600,000 ----- 430,000
Gross Margin 1,400,000 ----- 570,000
Allocated Overhead 375,000 ----- 125,000
Selling and Admin 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
heres an Imgur link of the statement image if that helps ( https://imgur.com/a/w2QFFRV )
Required:
a. Calculate return on investment for each division.
b. What does return on investment tell us about each division? Indicate why this measure is useful in evaluating investment centers.
Thank you in advance for any assistance in understanding
