RI.Pool Accessories, Inc., has two divisionsFurniture and Supplies. (This is the same company as the previous exercises. 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. Assume the cost of capital rate is 10 percent.

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:

1. Calculate RI for each division.
2. What does RI tell us about each division?