Brief Exercise 10-10 For its three investment centers, Gerrard Company accumulat

Question

Brief Exercise 10-10 For its three investment centers, Gerrard Company accumulates the following data: Sales Controllable margin Average operating assets 5,044,0007,957,000 12,138,000 The centers expect the following changes in the next year: (I) increase sales 20%; (II) decrease costs $427,000; (III) decrease average operating assets $516,000. $1,990,000 $3,962,000 $3,915,000 07,040 2,546,240 3,762,780 | Compute the expected return on investment (ROI) for each center. Assume center I has a controllable margin percentage of 80%. (Round Rol to 1 decimal place, The expected return on investment LINK TO TEXT

Explanation / Answer

Ans. I II III The Expected return on investment 37.9% 37.4% 32.4% Center I: Expected return on investment = Controllable margin / Average operating assets * 100 1910400 / 5044000 * 100 37.8747 *Controllable margin = 80% of sales 2388000 * 80% 1910400 *Sales = 1990000 + 20% 2388000 Center II: Expected return on investment = Controllable margin / Average operating assets * 100 2973240 / 7957000 * 100 37.36634 *Decrease in cost will increase the controllable margin by the same amount. Controllable margin = 2546240 + 427000 2973240 Center III: Expected return on investment = Controllable margin / Average operating assets * 100 3762780 / 11622000 * 100 32.37636 *Average operating assets = 12138000 - 516000 11622000

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