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).Income from operations for Division X is $50,000,and income from operations for Division Y is $38,000.Division X has a higher return on investment than Division Y by
A)using income from operations as a performance measure.
B)comparing income from operations.
C)applying a negotiated price measure.
D)using its assets more efficiently in generating sales.

Question

Quizplus · Accepted Answer

Division X has a higher return on investment because it is using its assets more efficiently in generating sales with an investment turnover of 1.2. This means that Division X is generating more sales per dollar of assets than Division Y, which has an investment turnover of only 1.0. Comparing income from operations (choice B) or using income from operations as a performance measure (choice A) does not provide a clear explanation of why Division X has a higher return on investment. Applying a negotiated price measure (choice C) is not relevant to this scenario.

Two Divisions of Crowson Company (Divisions X and Y)have the Same