ROI performance measures based on historical cost and current cost, Nature's Elixir Corporation operates three divisions that process and bottle natural fruit juices. The historical-cost accounting system reports the following information for 2008:

Nature's Elixir estimates the useful life of each plant to be 12 years, with no terminal disposal value. The straight-line depreciation method is used. At the end of 2008, the Passion Fruit plant is 10 years old, the Kiwi Fruit plant is 3 years old, and the Mango Fruit plant is 1 year old. An index of construction costs over the 10-year period that Nature's Elixir has been operating (1998 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.

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 23-2 to compute the ROI of each division, incorporating current- cost estimates as of 2008 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 Kiwi Fruit Division Mango Fruit Division Revenues $1,000,000 $1,400,000 $2,200,000 Operating costs (excluding plant depreciation) Plant depreciation 600,000 760,000 1,200,000 200,000 240,000 140,000 Operating income $ 260,000 $ 400,000 $ 440,000 $ 500,000 $ 760,000 $ 600,000 Current assets Long-term assets plant 280,000 1,800,000 2,640,000 $ 680,000 $3,240,000 Total assets $2,300,000