Various measures of profitability. As a way to incentcompetition between divisions, the president of Industrial Products told the division managers that a quarterly bonus would be paid only to the most profitable division. However, absolute division operating income as ¢)
conventionally computed would not be used. Instead, the ranking would be affected by the relative investments in the three divisions. Options available include ROI and residual income.
Investment can be measured using gross book value or net book value. Each manager has now written a memorandum claiming entitlement to the bonus. The following data are available:

All the assets are fixed assets that were purchased 10 years ago and have 10 years of useful life remaining. A zero terminal disposal price is predicted. Industrial Products’ required rate of . , . . . . . return on investment used for computing residual income is 12% of investment.
REQUIRED Which method for computing profitability did each manager choose? Make your description specific and brief. Show supporting computations. Where applicable, assume straight-line amortization.LO1

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Division Ontario Gross Book Value of Division Assets $1,000,000 $1,000,000 Division Operating Income $150,000 $120,000 Quebec Alberta $ 350,000 $ 55,000