Recreation Equipment Company has several divisions that are investment centers. Data for the Boat Division and the Trailer Division are shown here:
$\begin{array}{|l|r|r|}
\hline & \text { Boat Division } & \text { Trailer Division } \
\hline \text { Operating income } & \$ 90,000 & \$ 36,000 \
\hline \text { Total assets at Jan 1 } & \$ 670,000 & \$ 230,000 \
\hline \text { Total assets at Dec } 31 & \$ 710,000 & \$ 220,000 \
\hline
\end{array}$
With regard to using assets efficiently, the Boat Division has the higher 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:
 $\begin{array}{|l|r|r|}
\hline & \text { Boat Division } & \text { Trailer Division } \
\hline \text { Operating income } & \$ 90,000 & \$ 36,000 \
\hline \text { Total assets at Jan 1 } & \$ 670,000 & \$ 230,000 \
\hline \text { Total assets at Dec } 31 & \$ 710,000 & \$ 220,000 \
\hline
\end{array}$ 
With regard to using assets efficiently, the Boat Division has the higher ROI because it has the highest operating income.

Quizplus · Accepted Answer

ROI (Return on Investment) is calculated as Operating Income divided by Average Total Assets. The Boat Division may have higher operating income, but ROI also depends on the amount of assets used to generate that income. To determine which division has the higher ROI, you must calculate the ROI for each division using their respective operating incomes and the average of their total assets at the beginning and end of the period.

Recreation Equipment Company Has Several Divisions That Are Investment Centers