C&C Sports continuing case - (L0 3) Return on investment After seeing the results of the segment analysis for the Nylon Fibers division, James Cameron wants all three divisions focusing on the correct avenues for improv- ing division performance. Refer to Exhibit 10.4 and the related information on page 10-14 to answer the following questions. Required :1. Calculate the margin and asset turnover for Centex Yarns' three divisions. Show that margin x asset turnover equals the return on investment for each division as reported in the text. b. Compare the margin and asset turnover for the three divisions and make suggestions for increas- ing the return on investment of each division. Let's calculate the ROI for each of Centex Yarns' divisions. In the following calculations, the segment margins are drawn from Exhibit 10.4. Polyester Fibers Rope Nylon Division Division Fibers Division Segment Margin $1,802,000 $2,152,000 $ 865,000 Average Assets $8,153,000 $8,406,250 $2,703,000 1,802,000 2,152,000 , ROI $ = 22.1% $ = 25.6% M = 32% $8,153,000 $8,406,250 $2,703,000 ROI is a relative measure of return. In other words, it says nothing about the dollar amount of return; it is simply a rate of return. Notice that of the three divisions, the Nylon Fibers divi- sion has the highest ROI, yet it also has the smallest segment margin and the smallest dollar amount of assets to use in generating that margin. Based solely on ROI, the Nylon Fibers divi- sion is outperforming the other two divisions. Based on segment margin alone, however, the Rope division is outperforming the other two divisions. such a statement in Unit 8.2 by preparing a segment margin income statement. As you should recall, the segment margin income statement excludes all allocated costs in the calculation of the segment margin. Only the traceable fixed costs should be subtracted from the contribution margin to arrive at the segment margin. Common xed costs should not appear in the segment analysis; rather, they should be reported only in the total column. Exhibit 10.4 shows Centex Yarns' segment margin income statement. Segment margin income Plmer \"0\" statement for Centex Yams. 1 W m M Lotll 2 Revenue 5 10.600.000 s 6.725.000 5 8,650,000 5 25,975,000 3 Less variable expenses 74 Cost of goods sold 5,543,000 2,368,000 4,414,000 12,325,000 5 Selling 8| administrative 1,334,000 649,000 890,000 2,373,000 6 Contribution margin 3.723.000 3.708.000 3.346.000 10,777,000 7 less traceable fixed expenses 8 . Cost of goods sold 1.685.000 1,382,000 2,208,000 5,275,000 9 Selling 8| administrative 236,000 174,000 273,000 683,000 10 Segment margin 5 1,802,000 $ 2,152,000 $ 865,000 4,319,000 ECommon fixed expenses 2,886,000 12 Net operating income 3 1,933,000