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jerico jerico
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8 years ago
Gas Supply Corporation uses the investment center concept for the gasoline stations that it manages in the city. Consolidated has a 15% required rate of return on investment in order for a branch station to be viable. Select operating data for three of its stations for 2015 are as follows:

   Maple Street   Oak Street   High Street
Revenue   $17,000,000   $13,500,000   $15,000,000
Operating assets   7,000,000   7,000,000   6,000,000
Net operating income   900,000   1,200,000   980,000

Required:
a.   Compute the return on investment for each station.
b.   Which station manager is doing best based only on ROI? Why?
c.   Are any of the stations in danger of being closed due to lack of performance?
d.   What other factors should be included when evaluating the managers?
Textbook 
Cost Accounting

Cost Accounting


Edition: 14th
Authors:
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cyborgcyborg
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8 years ago
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More solutions for this book are available here
a.   Maple    = $900,000 / $7,000,000   = 12.86%
   Oak    = $1,200,000 / $7,000,000   = 17.14%
   High   = $980,000 / $6,000,000   = 16.33%

b.   Oak Street is doing the best because the ROI is the highest.

c.   Maple Street is in danger of being shut down because it is only making a return on its investment base of 12.86%. This is less than the required rate of return of 15%.

d.   At a minimum, the company should consider examining the DuPont method, residual income, and the age of operating assets.
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jerico Author
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#2
8 years ago
Very happy to know people like you still exist. Really, without your help, I wouldn't understand the content one bit.
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#3
8 years ago
Sweet, you're welcome.
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