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 assets5,027,000 $1,950,000 $3,980,000 $3,925,000 1,105,940 1,930,320 4,571,020 8,043,000 12,029,000 | The centers expect the following changes in the next year: (1) increase sales 16%; (II) decrease costs $413,000; (III) decrease average operating assets $496,000 Compute the expected return on investment (ROI) for each center. Assume center I has a controllable margin percentage of 74%. (Round R01 to 1 decimal place, e.g. 1.5.) The expected return on investment LINK TO TEXT

Explanation / Answer

I II III Sales $2,262,000 $3,980,000 $3,925,000 (1950000*116%) Controllable Margin 1,336,820 2,343,320 4,571,020 (1105940+ (312000*74%)) (1930320+ 413000) Average operating Assets 5,027,000 8,043,000 11,533,000 (12029000-496000) Expected Return on investment 26.6% 29.1% 39.6% In Center I, Increase in Sales is $312,000 (1950000*16%) and increase in controllable Margin is $ 230880 (312,000X74%) Return on investment = Controllable Margin/Average Operating Assets

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