Sea Cruise Equipment Company has several divisions that are investment centers. Data for the Boat Division and the Trailer Division are shown here:
$$\begin{array} { | l | r | r | }
\hline & \text { Boat Division } & \text { Trailer Division } \
\hline \text { Operating income } & \$ 70,000 & \$ 42,000 \
\hline \text { Total assets at Jan. 1 } & \$ 692,000 & \$ 233,000 \
\hline \text { Total assets at Dec. 31 } & \$ 700,000 & \$ 218,000 \
\hline
\end{array}$$ With regard to the efficient use of assets, the Boat Division has a higher return on investment (ROI) because it has the highest operating income.

Question

Sea Cruise Equipment Company has several divisions that are investment centers. Data for the Boat Division and the Trailer Division are shown here:
 $$\begin{array} { | l | r | r | } 
\hline & \text { Boat Division } & \text { Trailer Division } \
\hline \text { Operating income } & \$ 70,000 & \$ 42,000 \
\hline \text { Total assets at Jan. 1 } & \$ 692,000 & \$ 233,000 \
\hline \text { Total assets at Dec. 31 } & \$ 700,000 & \$ 218,000 \
\hline
\end{array}$$ With regard to the efficient use of assets, the Boat Division has a higher return on investment (ROI) because it has the highest operating income.

Quizplus · Accepted Answer

ROI is calculated as Operating Income / Average Total Assets. The Boat Division's average assets are higher, so without calculating the exact ROI, we cannot conclude it has a higher ROI solely based on operating income.

Sea Cruise Equipment Company Has Several Divisions That Are Investment