Asked by Paula Izquierdo on May 20, 2024
Verified
Return on investment is calculated by dividing
A) contribution margin by sales.
B) controllable margin by sales.
C) contribution margin by average operating assets.
D) controllable margin by average operating assets.
Controllable Margin
The portion of income that can be directly controlled or influenced by management decisions, often excluding fixed costs.
Operating Assets
Assets used in the day-to-day operations of a business, contributing to its ability to generate income.
Contribution Margin
The amount remaining from sales revenue after variable production costs have been deducted, contributing to covering fixed costs.
- Familiarize with the concept of Return on Investment (ROI) and the techniques for its calculation in different business settings.
- Elucidate the connection that exists among controllable margin, sales, and the rate of return on investment.
Verified Answer
XZ
XinYin ZhangMay 22, 2024
Final Answer :
D
Explanation :
Return on investment (ROI) is calculated by dividing the controllable margin (or net operating income) by the average operating assets. This measures the efficiency with which a company uses its assets to generate earnings.
Learning Objectives
- Familiarize with the concept of Return on Investment (ROI) and the techniques for its calculation in different business settings.
- Elucidate the connection that exists among controllable margin, sales, and the rate of return on investment.