CMA Intermediate · Management Accounting · Responsibility Accounting
A division of Sundaram Industries has operating profit of ₹6,00,000 and average capital employed of ₹40,00,000. What is its Return on Investment (ROI)?
ROI is operating profit divided by capital employed. Here ₹6,00,000 divided by ₹40,00,000 gives 15%. Dividing capital by profit or using other bases gives wrong figures, so the division's ROI is 15 percent.
- A6.7%
- B15%Correct
- C24%
- D10%
Explanation
ROI = Operating profit / Capital employed × 100 = 6,00,000 / 40,00,000 × 100 = 15%. The 6.7% option inverts the ratio (capital over profit).
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