Two divisions of Central 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 $55,000, and income from operations for Division Y is $43,000. Division X has a higher return on investment than Division Y by:
A) using income from operations as a performance measure
B) comparing the profit margins
C) applying a negotiated price measure
D) using its assets more efficiently in generating sales

Question

Quizplus · Accepted Answer

The difference in return on investment between Division X and Division Y can be attributed to Division X using its assets more efficiently in generating sales. This is indicated by Division X's larger investment turnover ratio (1.2 to 1.0) compared to Division Y. Therefore, choice D is the best answer. The other options (using income from operations as a performance measure, comparing the profit margins, and applying a negotiated price measure) do not directly address the difference in return on investment between the two divisions.

Two Divisions of Central Company (Divisions X and Y) Have