The data for a Cears investment center is given below. 1/1/12 12/31/12 Current a

Question

The data for a Cears investment center is given below.

                                                                      1/1/12                         12/31/12    

Current assets                                           $   300,000                  $   700,000

Plant assets                                                3,000,000                    4,000,000

Idle plant assets                                             250,000                       330,000

Land held for future use                              1,200,000                    1,200,000

The controllable margin is $760,000.

What is the return on investment for the center for 2013?

Explanation / Answer

(1)Controllable margin($1,200,000 – $500,000) =$700,000

(2)Average operating assets($700,000 ÷ .10)= $7,000,000

(3)Controllable margin($800,000 – $200,000)=$600,000

(4)ROI($600,000 ÷ $4,000,000)=15%

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