Olathe Division of Hartley Company's operating results include: controllable margin, $200,000; sales $2,200,000; and operating assets, $800,000. The Olathe Division's ROI is 25%. Management is considering a project with sales of $100,000, variable expenses of $60,000, fixed costs of $40,000; and an asset investment of $150,000. Should management accept this new project?

Question

Quizplus · Accepted Answer

The new project has a ROI of (100,000-60,000-40,000)/150,000 = 0.1333 or 13.33%. This is lower than the Olathe Division's current ROI of 25%. Accepting the project would lower the overall ROI of the division, so it is not recommended.

Olathe Division of Hartley Company's Operating Results Include: Controllable Margin