Question

Terra Company has two divisions, the Retail Division and the Wholesale Division. The following information was gathered for the two divisions for the current year: Retail Division Wholesale Division Operating income $ 2,510,000 $ 6,010,000 Operating assets $ 16,100,000 $ 36,100,000 Terra Company has set a target return on investment (ROI) of 14% for both divisions. Based on ROI, which division appears to have performed better

Answer 1

Wholesale Division

Step-by-step explanation:

ROI = Divisional Profit Contribution ÷ Assets employed in the division

therefore,

Retail Division (ROI) = $ 2,510,000 ÷ $ 16,100,000

= 0.15.6 or 15.60 %

and

Wholesale Division (ROI) = $ 6,010,000 ÷ $ 36,100,000

= 0.16.6 or 16.60 %

Conclusion :

Wholesale Division appears to have performed better