Pool Accessories, Inc., has two divisionsFurniture and Supplies. Segmented income statement information for the most recent fiscal year ended December 31 is shown as follows. Assume the Furniture division had average operating assets totaling $6,500,000 for the year, and the Supplies division had average operating assets of $1,750,000.

Pool Accessories, Inc.

Segmented Income Statements

For the Current Fiscal Year Ended December 31

(dollar amounts are in thousands)

Furniture Division Supplies Division

Sales $3,000,000 $1,000,000

Cost of Goods Sold 1,600,000 430,000

Gross Margin $1,400,000 $570,000

Allocated Overhead 375,000 125,000

Selling and Administrative Expenses 250,000 200,000

Operating Income $775,000 $245,000

Income Tax Expense (30% rate) 232,500 73,500

Net Income $542,500 $171,500

Required:

a. Calculate ROI for each division.

b. What does ROI tell us about each division?

c. Indicate why this measure is useful in evaluating investment centers.