Conner Manufacturing has two major divisions. Management wants to compare their relative performance. Information related to the two divisions is as follows:
Based on ROI, which division is more profitable?
A) Division 1
B) Division 2
C) Both divisions have the same return on investment ratio

Question

Conner Manufacturing has two major divisions. Management wants to compare their relative performance. Information related to the two divisions is as follows:
  Based on ROI, which division is more profitable?
A) Division 1 
B) Division 2 
C) Both divisions have the same return on investment ratio

Quizplus · Accepted Answer

Return on Investment: Operating income/Investment or
Return on sales x Asset utilization
ROI Division 1
Operating income: $200,000 - $150,000 = $50,000
Return on sales: $50,000 / $200,000 = 0.250
Asset utilization: $200,000 / $950,000 = 0.211 (rounded)
ROI: 0.250 x 0.211 = 0.053 (rounded)
Division 2:
Operating income: $45,000 - $35,000 = $10,000
Return on sales: $10,000 / $45,000 = 0.222 (rounded)
Asset utilization: $45,000 / $200,000 = 0.225
ROI: 0.222 x 0.225 = 0.050 (rounded)
Division 1 has a higher ROI, and would be considered relatively more profitable.

Conner Manufacturing Has Two Major Divisions