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

Quizplus · Accepted Answer

ROI is calculated as Operating Income divided by Average Total Assets. The Boat Division has a higher operating income, but ROI depends on both income and asset usage. The Trailer Division may have a higher ROI if it uses its assets more efficiently.

Recreation Equipment Company Has Several Divisions That Are Investment Centers