Final answer:
The statement that Bre's division, with a 30% return on investment which exceeds the 20% cost of capital, is correct as it indicates the division is profitable and contributing positively to the company.
Step-by-step explanation:
The investment center performance can be evaluated using its operating income, sales revenue, and capital investment figures. In the scenario presented, we calculate the return on investment (ROI) and compare it to the cost of capital to ascertain the division's success. The ROI is calculated as the operating income divided by the capital invested. For Bre's division, this would be $600,000 / $2,000,000, resulting in a 30% ROI. Given that the cost of capital is 20%, Bre's division's ROI of 30% exceeds the cost of capital, indicating that the division is adding value to the company.
Regarding the self-check questions, if a firm had sales revenue of $1 million and spent a total of $950,000 ($600,000 on labor, $150,000 on capital, and $200,000 on materials), its accounting profit would be the difference between the sales revenue and the total expenditures, which equates to $1,000,000 - $950,000, resulting in an accounting profit of $50,000.
Lastly, if a center earns revenues of $20,000 with variable costs of $15,000, the contribution margin is $5,000, which implies it can cover its fixed costs and possibly generate profit, suggesting it should continue in business.