   Chapter 14, Problem 3SEQ

Chapter
Section
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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