CinRich Corporation Recorded Operating Data for Its Waterhole Division for the Year.CinRich

question 68

Multiple Choice

CinRich Corporation recorded operating data for its Waterhole division for the year.CinRich requires a 9% rate of return. $$\begin{array} { l r } \text { Sales } & \$ 500,000 \\\text { Controllable margin } & 90,000 \\\text { Total average assets } & 300,000 \\\text { Fixed costs } & 30,000 \\\text { Residual income } & 50,000\end{array}$$ Suppose CinRich experiences an increase of $50,000 in controllable fixed costs.Will the new ROI be acceptable?

• A)Yes.The ROI will remain at 30% which exceeds the required ROI.
• B)Yes.The new ROI is still above the required ROI.
• C)No.The ROI drops to less than 9%.
• D)There is not enough information to determine the new ROI.

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Definitions:

Gross Profit

The revenue remaining after deducting the cost of goods sold (COGS) from the total sales revenue, indicating the efficiency of a company in managing its production and labor costs.

Equity in Investee Income

Equity in Investee Income refers to an investor's share of the income or losses of a company in which it holds an equity investment, recognized in proportion to its ownership percentage.

Significant Influence

The ability to impact the financial and operating policies of an investee through ownership or contract without having full control or majority ownership.

Gross Profit

The difference between revenue and the cost of goods sold before accounting for certain other costs.