Natural Bounty Corporation operates three divisions that process and bottle natural fruit juices. The historical- cost accounting system reports the following information for 2012:

Natural Bounty estimates the useful life of each plant to be 12 years, with no terminal disposal value. The com-pany uses the straight- line depreciation method. At the end of 2012, the Passion Fruit plant is 10 years old, the Kiwi Fruit plant is 5 years old, and the Mango Fruit plant is 2 years old. An index of construction costs over the 10- year period that Natural Bounty has been operating (2002 year@ end = 100) is:

Given the high turnover of current assets, management believes that the historical- cost and current- cost measures of current assets are approximately the same.

Required
1. Compute the ROI ratio (operating income to total assets) of each division using historical- cost measures. Comment on the results.
2. Use the approach in Exhibit 16- 2 ( page 674) to compute the ROI of each division, incorporating current- cost estimates as of 2012 for depreciation expense and long- term assets. Comment on the results.
3. What advantages might arise from using current- cost asset measures as compared with historical- cost measures for evaluating the performance of the managers of the three divisions?

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Passion Fruit Division $900,000 550,000 80,000 $270,000 $475,000 160,000 $635,000 Kiwi Fruit Division Mango Fruit Division $1,600,000 Revenues Operating costs (excluding plant depreciation) Plant depreciation Operating income Current assets Long-term assets-plant Total assets $2,500,000 900,000 270,000 $1,330,000 $ 700,000 2,700,000 $3,400,000 830,000 180,000 $ 590,000 520,000 1,260,000 $1,780,000 2007 2012 190 2002 2010 100 130 180