The Water Management Company Has Two Operating Divisions,the Service Division

question 86

Essay

The Water Management Company has two operating divisions,the Service Division and the Irrigation Division.The company evaluates the performance of its divisions using the return on investment (ROI)measure.The following information pertains to the two divisions as of the end of the current year.
$\begin{array}{l}&\text { Service } & \text { Irrigation } & \\&\text { Division } & \text { Division } & \text { Total }\\\text {Units repaired; Units produced}\\\text {and sold}&8,000&250\\\text {Level of investment in operating}\\\text {assets}&\$400,000&\$1,000,000&\$1,400,000\\\\\text { Expenses: }\\\text { Direct materials } & 40,000 & 400,000 & 440,000 \\\text { Direct labor } & 200,000 & 200,000 & 400,000 \\\text { Overhead } & 25,000 & 250,000 & 275,000\\\text { Selling/administrative (S\&A) }\\\text { costs } & \underline{15,000 }& \underline{150,000} & \underline{ 165,000} \\\text { Total expenses } & \underline{ \$ 280,000} & \underline{\$ 1,000,000 }& \underline{ \$ 1,280,000}\end{array}$
The average service fee was $50.00 per unit for the Service Division,while the average selling price of an irrigation system was $5,000 for the Irrigation Division.The company requires a minimum return on investment of 12%.
Required:
Compute the return on investment (ROI)measure for both divisions and the company as a whole.Based on ROI alone,which division had the better performance? (Round ROI measures to the nearest whole percent.)

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Definitions:

Cross-Docking

A logistics practice where incoming shipments are directly transferred from inbound to outbound transportation vehicles with minimal or no storage.

Geographically Dispersed

Describes a distribution or organization of individuals, assets, or units spread across a wide geographical area.

Customer Service

The support and assistance provided by a company to those who buy or use its products or services.

Logistics Management

The component of supply chain management that plans, implements, and controls the efficient, effective forward, and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption.