Rates of Return by Segments, Manager Behavior, and Ethics. The president of Metro Products Company is reviewing 1998 financial data and is concerned that one operating division is not doing as well as the others. The company has three separate divisions. Managers are rewarded according to divisional ROA. Financial data from 1998 are as follows:

Closer examination reveals that certain operating expenses are common to the total operation and have been allocated to the divisions. Also, included in direct assets are amounts pertaining to the total operation but not identifiable with any particular division. The amounts allocated to divisions are as follows:

\section*{Required:}
1. From the information given, recompute the ROA for each division.
2. What type of behavior is the company trying to encourage by using divisional ROA to evaluate managers?
3. What negative or unethical behavior might result from this system? Why?

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Net sales Cost of goods sold Operating expenses Total expenses. Net income.. Direct asset investment Return on assets 1 $1,700,000 $ 780,000 590,000 $1,370,000 Product Divisions 2 $2,000,000 $ 940,000 860,000 $1,800,000 $ 330,000 $ 200,000 $1,600,000 21% $2,000,000 10% 3 $1,800,000 $ 720,000 810,000 $1,530,000 $ 270,000 $1,080,000 25%