The current controllable margin for Claremont Division is $62,000.Its current operating assets are $200,000.The division is considering purchasing equipment for $60,000 that will increase annual controllable margin by an estimated $10,000.If the equipment is purchased, what will happen to the return on investment for Claremont Division?

Question

Quizplus · Accepted Answer

The current ROI is $62,000 / $200,000 = 31%. After the purchase, the new controllable margin is $72,000 ($62,000 + $10,000) and the new operating assets are $260,000 ($200,000 + $60,000). The new ROI is $72,000 / $260,000 = 27.7%. The decrease in ROI is 31% - 27.7% = 3.3%.

The Current Controllable Margin for Claremont Division Is $62,000