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24-36 ROI performance measures based on historical cost and current cost. Natural Bounty Corporation operates three divisions that process and bottle natural fruit juices. The historical-cost accounting system reports the following information for 2020: Passion Fruit Division Kiwi Fruit Division Mango Fruit Division $1,300,000 $2,000,000 $2,550,000 Revenues Operating costs 20 500,000 890,0000 1,200,000 (excluding plant depreciation) co eros Plant depreciation 240,000 230,000 Operating income 008 220,000 $ 890,000 $ 560,000 $1,120,000 DE8 Current assets $ 300,000 $ 500,000 1,760,000 20 Long-term assets-plant Total assets 480,000 $ 780,000 $ 600,000 O GAT 2,300,000 $2,900,000 inspirier $2,260,000 Natural Bounty estimates the useful life of each plant to be 12 years, with no terminal disposal value. The straight-line depreciation method is used. At the end of 2020, the passion fruit plant is 10 years old, the kiwi fruit plant is 4 years old, and the mango fruit plant is 2 years old. An index of construction costs over the 10-year period that Natural Bounty has been operating (2010 year-end = 100) is as follows: PRES 2010 2016 2018 2020 100 150 175 195 Given the high turnover of current assets, management believes that the historical-cost and current-cost measures of current assets are approximately the same. 1. Compute the ROI ratio (operating income to total assets) of each division using historical-cost measures. Comment on the results. De to USS am shiqmod 2. Use the approach in Exhibit 24-2 (page 952) to compute the ROI of each division, incorporating current- cost estimates as of 2020 for depreciation expenses and long-term assets. Comment on the results. 3. What advantages might arise from using current-cost asset measures as compared with historical- Yeau cost measures for evaluating the performance of the managers of the three divisions? 18 noga 24-36 ROI performance measures based on historical cost and current cost. Natural Bounty Corporation operates three divisions that process and bottle natural fruit juices. The historical-cost accounting system reports the following information for 2020: Passion Fruit Division Kiwi Fruit Division Mango Fruit Division $1,300,000 $2,000,000 $2,550,000 Revenues Operating costs 20 500,000 890,0000 1,200,000 (excluding plant depreciation) co eros Plant depreciation 240,000 230,000 Operating income 008 220,000 $ 890,000 $ 560,000 $1,120,000 DE8 Current assets $ 300,000 $ 500,000 1,760,000 20 Long-term assets-plant Total assets 480,000 $ 780,000 $ 600,000 O GAT 2,300,000 $2,900,000 inspirier $2,260,000 Natural Bounty estimates the useful life of each plant to be 12 years, with no terminal disposal value. The straight-line depreciation method is used. At the end of 2020, the passion fruit plant is 10 years old, the kiwi fruit plant is 4 years old, and the mango fruit plant is 2 years old. An index of construction costs over the 10-year period that Natural Bounty has been operating (2010 year-end = 100) is as follows: PRES 2010 2016 2018 2020 100 150 175 195 Given the high turnover of current assets, management believes that the historical-cost and current-cost measures of current assets are approximately the same. 1. Compute the ROI ratio (operating income to total assets) of each division using historical-cost measures. Comment on the results. De to USS am shiqmod 2. Use the approach in Exhibit 24-2 (page 952) to compute the ROI of each division, incorporating current- cost estimates as of 2020 for depreciation expenses and long-term assets. Comment on the results. 3. What advantages might arise from using current-cost asset measures as compared with historical- Yeau cost measures for evaluating the performance of the managers of the three divisions? 18 noga
