Parker Services requires all of its divisions to maintain a return on investment

Question

Parker Services requires all of its divisions to maintain a return on investment (ROI) of at least 25%. Over the past several years, one of Parker's divisions has consistently had the following information:

Sales $2,000,000
Net operating income 400,000

In order to achieve the company's ROI goals, this division should do which of the following?
a. Maintain average operating assets of $2,000,000 or more.
b. Maintain average operating assets of $2,000,000 or less.
c. Maintain average operating assets of $1,600,000 or more.
d. Maintain average operating assets of $1,600,000 or less.

Explanation / Answer

Option C is the correct answer. Given: Return on investment(ROI) 25% Net operating income 400,000 Calculation: ROI = Controllable margin/Average Operating assets 25% = 400,000/Average Operating assets 25/100 = 400.000/Average Operating assets Average Operating assets = 400,000*100/25                                         =$1,600,000 In order to achieve the company's ROI goals, the division should maintain average operating assets of $1,600,000 or more. In order to achieve the company's ROI goals, the division should maintain average operating assets of $1,600,000 or more. In order to achieve the company's ROI goals, the division should maintain average operating assets of $1,600,000 or more.

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