CMA Intermediate · Management Accounting · Divisional Performance Measurement
Kaveri Components Ltd's Pune division reported operating profit of ₹6,00,000 on capital employed of ₹30,00,000. What is the division's ROI?
ROI is 20 percent. It is calculated by dividing divisional operating profit of ₹6,00,000 by capital employed of ₹30,00,000 and multiplying by 100, which gives one-fifth, or 20 percent.
- A5%
- B20%Correct
- C25%
- D50%
Explanation
ROI = Operating profit / Capital employed × 100 = 6,00,000 / 30,00,000 × 100 = 20%. Using 5% would come from inverting the ratio incorrectly (30/6 mis-scaled), and 25% or 50% have no basis in the data.
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