Nov 2011 Paper ion M, P and C of Ananya Ltd are respectively engaged Manufacturing and Both. Control is through Return on Investment. Fixed Assets are depreciated on straight line basis. (10 Yrs). Performance is as under: M P € Profit before depreciation and Operating expenses ‘400 ‘400 400 Current Assets 200 200 200 Fixed Assets Nil 1000 500) ‘Operating expenses of divisions M,P and Care Rs. 200 lacs, 100 lacs and 150 lacs respectively. a. Compute ROI for each division b. Analyse and comment on the relations! any, between RO! achieved and the acti the division. Solution: a, Calculation of Operating Profit : Particulars M P Te Profit before depreciation and Operating expenses, 400 400 400 less: Depreciation = 100 | 50 Less: Operating Expenses 200 100 150 Operating Profit 200 200 | 200 Capital Employed Current Assets 200 200___| 200 Fixed Assets - 1000 | 500 Total 200 3200__| 700 - M P c 28 5.100 = 1003 200. 100 = 16.67% 200 * S i200 ~ Operating Profit Capital Employed * {a) Comments: (i) Marketing Division has achieved 100% ROI, but it has no fixed assets (i) Manufacturing Division has achieved 16.67% ROI and has both Current and Fixed Assets. (ii) C Division having both manufacturing and marketing activities has achieved return of 28.57%, (iv) The turnover of capital shows the relationship between operating profit and capital employed. The division engaged in marketing activities gets higher ROI. Division P engaged only on manufacturing gets lowest ROI. Division C engaged in both activities Bets a moderate ROI. Hence ROI of the divisions depend upon the nature of their activities. ‘This study source was downloaded by 1000080697062 fram Courseer0.om on 7-16-2021 08:09:20 GM 05:00 Inips:!www coursehero.com/ile/74696565/Black-Nov-201 Ipdt!