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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Division A of Kern Co. has sales of $350,000, cost of goods sold of $200,000, operating expenses of $30,000, and invested assets of $600000. What is the return on investment for Division A?
A. 20%
B. 25%
C. 33%
D. 40%

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

To Calculate:

The Return on Investment for Division A

Explanation

The Return on Investment for Division A is calculated as follows:

Sales 					$350,000
Less: Cost of Goods Sold 		$200,000
Less: O...

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