Pimp My Cubicle, Inc. (PMC) produces workspace flair for the poor souls in public accounting who don't ever leave their desks. PMC, Inc. recently announced a bonus plan to be awarded to the manager of the most profitable flair division. The three divisions are to choose whether ROI or RI will be used to measure profitability. In addition, they must decide whether the "Investment" will be measured using Original Capital Cost of assets, or Net Book Value of assets. PMC, Inc. defines "Income" as Operating Income and "Investment" as Total Assets. The following information is available for the year just ended:
|
Division
|
Original Capital Cost
|
Accumulated Depreciation
|
Operating Income
|
|
Ruby-Encrusted Mini Fridge
|
$1,200,000
|
$645,000
|
$142,050
|
|
Leopard Print Cubicle Fringe
|
1,140,000
|
615,000
|
137,550
|
|
Office Disco Ball
|
750,000
|
420,000
|
92,100
|
PMC, Inc. uses a required rate of return of 10% on investment to calculate RI.
Each division has selected a method of bonus calculation that ranks their division number one.
Required:
Identify the method for calculating profitability that each division selected, supporting your answer with appropriate calculations.