The Detroit unit of Michigan Company just purchased an asset for $180,000. The asset has a 3-year
Question:
The Detroit unit of Michigan Company just purchased an asset for $180,000. The asset has a 3-year life. Michigan’s top management evaluates Charlotte Anderson, manager of the Detroit unit, based on ROI of this asset. She can choose to measure the asset using either gross asset value or net asset value. Her operating income before depreciation each year is $150,000.
1. What is the Detroit unit’s ROI for each of the 3 years using gross asset value?
2. What is the Detroit unit’s ROI for each of the 3 years using net asset value?
3. If Charlotte expects Michigan to transfer her to a different unit in about a year, which asset valuation policy would she prefer?
Step by Step Answer:
Introduction To Management Accounting
ISBN: 9781292412566
17th Edition, Global Edition
Authors: Charles Horngren, Gary L Sundem, Dave Burgstahler