The Height of Fashion Corporation evaluates the performance of the divisions of the company based on ROI and bonuses are based on divisional ROI. A divisional income statement for the Men’s Wear Division for the past year is given below. The company has invested assets of $50,000,000 in the Men’s Wear Division. Height of Fashion: Men’s Wear Division Income Statement For the year ended December 31, 2016 Sales $25,000,000 Cost of Goods Sold 10,000,000
The Height of Fashion Corporation evaluates the performance of the divisions of the company based on ROI and bonuses are based on divisional ROI. A divisional income statement for the Men’s Wear Division for the past year is given below. The company has invested assets of $50,000,000 in the Men’s Wear Division.
Height of Fashion: Men’s Wear Division
Income Statement
For the year ended December 31, 2016
Sales $25,000,000
Cost of Goods Sold 10,000,000
Gross Profit $15,000,000
Operating Expenses 4,000,000
Income from Operations $11,000,000
a. Compute the ROI for the Men’s Wear division for the past year.
ANS: ¬¬¬¬¬__________________
b. Height of Fashion also has a Women’s Wear Division. Its ROI for the past year was 18%. The company is considering expanding one of its divisions by investing additional assets into that division. The company will only invest additional assets in one of the divisions, not both. In which division should it invest? Why? Be sure your answer convinces me that you understand the meaning of ROI.
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