1. Bobbles GoKarts (BGK) uses return on investment (ROI) to assess divisional performance, but it is considering switching to residual income (RI). BGK has an estimated cost of capital of 10%.

The Parts Division has recorded a stable ROI of 10% for the past few years. However, the Parts Divisional manager has been presented with an opportunity to invest $100,000 in some technology which will translate into additional profits of $12,000 per annum.

If the Parts Division makes the investment, the revised ROI and RI would be:

1. ROI = 21%, RI = $2,000
2. ROI = 12%, RI = $2,000
3. ROI = 10%, RI = $100,000
4. ROI = 10%, RI = $2,000

2. Bobble Toys, Inc. has three divisions. Budgeting information for next year is as follows:

	Purple Ball	Stick Game	Scratcher	Total
	$000s	$000s	$000s	$000s
Sales	1,000	600	300	1,900
Variable costs	750	420	200	1,370
	250	180	100	530
Fixed costs				700
Profit				(170)

Seventy-five percent (75%) of the fixed costs are specific to each division being split between Purple Ball, Stick Game, and Scratcher in the ratio 6 : 3 : 1, respectively.

Which divisions should be kept open by Bobble Toys?

1. All three divisions
2. None of the divisions
3. Purple Ball only
4. Stick Game and Scratcher only