The Following Information Relates to the Operating Performance of Three

question 25

Essay

The following information relates to the operating performance of three divisions of Santos,Inc.for last year.

Required:
a.Compute the rate of return on investment (ROI)of each division for last year.
b.Assume that the firm levies a charge on each division for the use of funds.The charge is 10 percent on investment,and the accounting system deducts it in measuring divisional net income.Recalculate ROI using divisional net income after deduction of the use-of-funds charge in the numerator.
c.Which of these two measures do you think gives the better indication of operating performance? Explain your reasoning.

---

Definitions:

Travel Expenses

are costs associated with business travel, including transportation, lodging, and meals, often reimbursable by an employer.

Customers Served

The total number of customers that have been provided services or goods by a business during a specific time period.

Flexible Budget

A budget which is modifiable in response to changes in the volume of operations or activity levels.

Variable Cost Estimates

Predictions or calculations regarding the variable costs that will be incurred during a specific period.