Compute the Return on Investment (ROI) and Residual Income (RI) for each division. Assess the validity of the claim made by the manager of the…

Calculation of ROI (Return on Investment)/ RI (Residual Income) for FY 2024-25 for the divisions at Hoshiarpur, Punjab Particulars Dairy Division Animal Feed Division Crop Protection Division a. Profit before interest and tax 60,10,000 63,77,500 57,66,000 b. Revenue 6,80,00,000 10,62,50,000 6,00,00,000 c. Head office expenses [@2% of (b)] 13,60,000 21,25,000 12,00,000 d. Controllable operating profit (a)+(c) 73,70,000 85,02,500 69,66,000 e. Net book value of plant and equipment 5,65,25,000 7,43,75,000 2,62,50,000 f. Net current assets 1,04,75,000 1,51,25,000 60,00,000 g. Investment (e)+(f) 6,70,00,000 8,95,00,000 3,22,50,000 h. ROI [(d)/(g)×100] 11% 9.50% 21.6% i. Required return [@9% of (g)] 60,30,000 80,55,000 29,02,500 j. RI [(d)-(i)] 13,40,000 4,47,500 40,63,500 The claim made by the manager of the Animal Feed Division is invalid because it registered worst performance among the three divisions under both the criteria. The ROI of Animal Feed Division is 9.50%, which is less than (11.00% and 21.60%) other two divisions, whereas RI is 4,47,500 which is also less than (₹ 13,40,000 and - 40,63,500) both other divisions. It is important to note that the Animal Feed Division earns the highest profit, however since its investment is high the ROI and RI are the lowest compared to the other divisions.