The Area Manager of the Red, White, and Brew Restaurants

question 41

Multiple Choice

The area manager of the Red, White, and Brew Restaurants is considering two possible expansion alternatives.The required investments, expected controllable margins, and the ROIs of each are as follows: $$\begin{array} { l c c c } \text { Project } & \text { Investment } & \text { Controllable Margin } & \text { ROI } \\\text { Phoenix } & \$ 120,000 & \$ 30,000 & 25 \% \\\text { Chicago } & \$ 540,000 & \$ 50,000 & 9.25 \%\end{array}$$ The Red, White, and Brew segment has currently $2,000,000 in invested capital and a controllable margin of $250,000.Which one of following projects will increase the Red, White, and Brew division's ROI?

• A)Both the Phoenix and Chicago options
• B)Only the Phoenix option
• C)Only the Chicago option
• D)Neither the Phoenix nor the Chicago options

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Definitions:

Contribution Format

A way of presenting income statements where costs are separated into variable and fixed, and contribution margin is highlighted.

Common Fixed Expenses

Costs that do not vary with the level of production or sales and are shared among different segments of a business.

Variable Expenses

Expenses that change in proportion to the amount of goods produced or the volume of sales, including labor and materials.

Sales Territories

geographical or demographic areas assigned to sales representatives or teams to manage and cultivate customer relationships and sales activities.