*The data for an investment center is given below. 1/1/12 12/31/12 Current asset

Question

*The data for an 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.

Instructions

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

Explanation / Answer

Plant Assets= ($3,000,000+$4,000,000)/2=               $3,500,000

Average Current Assets=($300,000+$700,000)/2=       $500,000

--------------

$4,000,000

ROI = Controllable margin ÷ Average operating assets

          =$760,000/$4,000,000 =19%    

Land held for future use and idle plants are not considered as operating assets

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