Cleopatra Corporation's Lingerie division has a segment margin of $729,000 and net sales revenue of $5,400,000 for the current reporting period.Average total assets for the period were $3,375,000.The division manager is considering implementing a new inventory system which would reduce inventory by $675,000.Assuming no change in sales or segment margin, the projected ROI with the reduction in inventory would be

Question

Quizplus · Accepted Answer

ROI = Segment Margin / Average Total Assets
ROI before the inventory reduction = $729,000 / $3,375,000 = 21.6%
ROI after the inventory reduction = $729,000 / ($3,375,000 - $675,000) = 24%
Therefore, the projected ROI with the reduction in inventory would be 24%. The best choice is D.

Cleopatra Corporation's Lingerie Division Has a Segment Margin of $729,000