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Unit 4: Responsibility Centers

2. Net Assets = Gross Assets – Accumulated depreciation Notes
= 14, 00, 000 – 3, 50,000 = ` 10, 50,000

ROI using net assets =

3. Gross assets employed = Gross assets – assets held for investment
= 14,00,000 – 3,00,000 = ` 11,00,000

ROI using gross assets employed =

4. Net assets employed = Gross assets employed – Accumulated depr.
= 11, 00, 000 – 3, 50,000 = ` 7, 50,000

ROI using net assets employed =
5. Beginning owners equity = Capital stock + Retained earnings (op)
= 240,000 + 4,00,000 = 6,40,000

ROI using beginning owners =

Equity employed
6. Ending owners equity = Beginning owners equity + operating profit –
Dividend
= 6,40,000 + 2,00,000 – 50,000
= 7,90,000

ROI using ending owners equity =

Problem 4: Hoppleworth products began operations 8 years ago in Eastern India. Business grew
rapidly and soon product demand outstripped production facilities. The company opened a new
plant of identical size and capacity in the Western India 2 years ago. Each plant serves its
geographical area and is operated as a separate division. Below are operating data for the most
recent year:

Eastern Division Western Division
Sales 10,00,000 10,00,000
Manufacturing expenses 5,00,000 6,00,000
Marketing expenses 1,00,000 1,00,000
Administrative expenses 2,00,000 2,00,000
Current assets 2,00,000 2,00,000
Fixed assets (Gross) 10,00,000 20,00,000
Accumulated depreciation 8,00,000 4,00,000

Since the Eastern Division plant was built, construction costs have doubled. The entire difference
in manufacturing expenses is due to higher depreciation costs of the Western India plant.
Required:

1. Compute return on investment for each division based on total net assets.
2. Compute return on investment for each division based on total gross assets.
3. What is your evaluation of the two divisions?

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