Le Sud Retailers Has a Current Return on Investment of 10

question 85

Multiple Choice

Le Sud Retailers has a current return on investment of 10% and the company has established an 8% minimum rate of return for the division. The division manager has two investment projects available for which the following estimates have been made:
Project A - Annual controllable margin = $24000 operating assets = $400000
Project B - Annual controllable margin = $60000 operating assets = $550000
Which project should be funded?

• A) Both projects
• B) Project A
• C) Project B
• D) Neither project

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Definitions:

Indirect Materials

These are materials used in the production process that are not directly traceable to the finished product.

Production

The process of creating goods and services through the combination of labor, materials, and technology.

Direct Materials Cost

The cost of raw materials that can be directly traced to the production of goods, considered a variable cost in manufacturing.

Inventories

Assets held for sale, or in the process of being produced for sale, or to be used in the production process.