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Chapter 24: 8SE (page 1357)

Refer to the information in Short Exercise S24-7.

Requirements

1. Compute each division鈥檚 asset turnover ratio (round to two decimal places). Interpret your results.

2. Use your answers to Requirement 1, along with the profit margin ratio, to recalculate ROI using the expanded formula. Do your answers agree with the basic ROI in Short Exercise S24-7?

Short Answer

Expert verified

The asset turnover ratio of Snow sports is1.34 times and non-snow sports is 1.39 times. The ROI of Snow sports is 24.12% and non-snow sports is 25.02%

Step by step solution

01

Computation of asset turnover ratio

AssetsTurnoverRatioofSnowSports=NetSalesAveragetotalassets=5,500,0004,100,000=1.34times

AssetsTurnoverRatioofNonSnowSports=NetSalesAveragetotalassets=8,500,0006,100,000=1.39times

02

Computation of Return on Investment

ReturnonInvestmentofSnowSports=ProfitMarginRatio脳AssetTurnoverRatio=18脳1.34=24.12%

ReturnonInvestmentofNonSnowSports=ProfitMarginRatio脳AssetTurnoverRatio=18脳1.39=25.02%

There is a slight difference between the basic ROI and the ROI computed using the expanded formulae.

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Most popular questions from this chapter

Decentralization divides company operations into various reporting units. Most decentralized subunits can be described as one of four different types of responsibility centers.

Requirements

1. Explain why companies decentralize. Describe some typical methods of decentralization.

2. List the four most common types of responsibility centers, and describe their responsibilities.

Financial performance is measured in many ways.

Requirements

1. Explain the difference between lag and lead indicators.

2. The following is a list of financial measures. Indicate whether each is a lag or a lead indicator:

a. Income statement shows net income of \(100,000

b. Listing of next week鈥檚 orders of \)50,000

c. Trend showing that average hits on the redesigned Web site are increasing at 5% per week

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e. Contract signed last month with large retail store that guarantees a minimum shelf space for Grandpa鈥檚 Overloaded Chocolate Cookies for the next year

What is a key performance indicator?

Grandpa Jim鈥檚 Cookie Company sells homemade cookies made with organic ingredients. His sales are strictly Web based. The business is taking off more than Grandpa Jim ever expected, with orders coming from across the country from both consumers and corporate event planners. Grandpa decides to decentralize and hires a full-time baker who will manage production and product costs and a Web site designer/sales manager who will focus on increasing sales through the Web site. Grandpa Jim can no longer handle the business on his own, so he hires a business manager to work with the other employees to ensure the company is best utilizing its assets to produce profit. Grandpa will then have time to focus on new product development. Now that Grandpa Jim鈥檚 Cookie Company has decentralized, identify the type of responsibility center that each manager is managing

List the advantages of decentralization.
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