Two divisions of Crowson Company (Divisions X and Y) have the same profit margins.Division X's investment turnover is larger than that of Division Y (1.2 to 1.0).Which of the following statements is true?
A) Division Y will have a higher return on investment as it is using its assets more efficiently in generating sales.
B) Division X will have a higher return on investment as it is generating more operating income.
C) Division X will have a higher return on investment as it is using its assets more efficiently in generating sales.
D) Division Y will have a higher return on investment as it is generating more operating income.

Question

Quizplus · Accepted Answer

Investment turnover measures the efficiency of a division in using its assets to generate sales. Since Division X has a larger investment turnover, it means it is using its assets more efficiently in generating sales. Therefore, Division X will have a higher return on investment (ROI) compared to Division Y, assuming all other factors are equal. Operating income is not a good measure of ROI as it does not consider the amount of assets required to generate that income.

Two Divisions of Crowson Company (Divisions X and Y) Have