Recreation Equipment Company has several divisions that are investment centers.Data for the Boat Division and the Trailer Division are shown here:
$$\begin{array} { | l | r | r | }
\hline & \text { Boat Division } & \text { Trailer Division } \
\hline \text { Operating income } & \$ 70,000 & \$ 42,000 \
\hline \text { Total assets at Jan. 1 } & \$ 692,000 & \$ 233,000 \
\hline \text { Total assets at Dec. 31 } & \$ 700,000 & \$ 218,000 \
\hline
\end{array}$$ With regard to the efficient use of assets,the Boat Division has a higher return on investment (ROI)because it has the highest operating income.

Question

Recreation Equipment Company has several divisions that are investment centers.Data for the Boat Division and the Trailer Division are shown here:
 $$\begin{array} { | l | r | r | } 
\hline & \text { Boat Division } & \text { Trailer Division } \
\hline \text { Operating income } & \$ 70,000 & \$ 42,000 \
\hline \text { Total assets at Jan. 1 } & \$ 692,000 & \$ 233,000 \
\hline \text { Total assets at Dec. 31 } & \$ 700,000 & \$ 218,000 \
\hline
\end{array}$$ With regard to the efficient use of assets,the Boat Division has a higher return on investment (ROI)because it has the highest operating income.

Quizplus · Accepted Answer

ROI is calculated as Operating Income divided by Average Total Assets. The Boat Division's higher operating income does not necessarily mean it has a higher ROI, as ROI also depends on the asset base.

Recreation Equipment Company Has Several Divisions That Are Investment Centers