Question
Pool Accessories, Inc., has two divisionsFurniture and Supplies. (This is the same company as the previous exercise. This exercise can be assigned independently.) Segmented income
Pool Accessories, Inc., has two divisionsFurniture and Supplies. (This is the same company as the previous exercise. This exercise can be assigned independently.) 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
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. What does ROI tell us about each division? Indicate why this measure is useful in evaluating investment centers.
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