Question

Office Supplies Ltd has a geographical structure with two divisions aligned with its two markets: Sydney and Brisbane. Sales The following data is provided for the two divisions for the year 2019: Sydney Brisbane $600,000 $400,000 Contribution margin ratio 52% 58% Fixed costs $280,000 $190,000 Divisional investments $200,000 $280,000 Common costs for the year totalled $70,000 and were allocated based on sales. The management of Office Supplies Ltd faced an investment opportunity, which would require an investment of $50,000 in 2020 and would deliver sales of $100,000 with variable costs estimated at $50,000 and fixed costs at $42,250. Required: 1. If divisional performance is evaluated based on ROI, which division would want to take over the new investment opportunity? (calculate the divisional ROI of the two divisions before the investment and calculate the ROI of the new investment) (8 marks) Sydney Brisbane ROI ROI new investment: Decision:

Answer 1

Sydney Brisbane ROI SO2000 x 100 $ 200.000 đ 2000 10 $960ooottero 1676 15 % Calculation of pet income. a Sydney Brisbane Sale $6ooooo $400000 Contribution $312000 $232000 ekxed cost $280000 $190000 $ 32000.. $42000

ROI investment Sales = $ loan Contribution - $ 50000 y Rixed cost $42250 $ 7750 Rol of new = $7750 x 100 investment $50000 = 15.5 % Decision Brisbane would want to take over the new investment oppouhirtly