Cruise Division of Harrah's Company's operating results include: controllable margin, $150,000; sales, $1,750,000; and operating assets, $750,000.The Cruise Division's ROI is 20%.Management is considering a project with sales of $125,000, variable expenses of $75,000, controllable fixed costs of $50,000; and an asset investment of $90,000.Should management accept this new project?

Question

Quizplus · Accepted Answer

The current ROI of the Cruise Division is 20%, and accepting the new project would lower the ROI. The new project would have an ROI of only 5% ([$125,000 - $75,000 - $50,000] / $90,000), which is lower than the current ROI. Therefore, management should not accept this new project solely based on the ROI.

Cruise Division of Harrah's Company's Operating Results Include: Controllable Margin