Chapter 14, Problem 14.3.3C

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

Chapter
Section

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Evaluating divisional performance The three divisions of Dixie Foods are Cereal, Produce, and Snacks. The divisions are structured as investment centers. The following responsibility reports were prepared for the three divisions for the prior yearDetermine the overall return on investment for Dixie Foods. Round to one decimal place.

To determine

Concept Introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

ROI (Expanded)= Operating IncomeSales ×SalesAverage total assets

Or

ROI = Profit Margin Ratio ×Asset Turnover ratio

The overall return on investment for the company

Explanation

The overall return on investment for the company is calculated as follows:

 Cereal Produce Snacks Total Operating Income (A) $432,000$ 960,000

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