I do have a problem that how the ROCE in both division is same?
Question#1
Division X:
Revenue = 50,000
Operating costs = 20500
Fixed cost = 11000
Profit = 18,500
Capital employed = 150,000
Division Y:
Revenue = 40,000
Operating costs = 18000
Fixed cost = 12000
Profit = 10,000
Capital employed = 100,000
Half of the Fixed costs for each division are allocated to head office expenses.
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ROCe
4y ago
4y ago#1Given that half of the fixed costs are head office expenses, they are not controllable by the divisions.
Therefore the controllable profit in division X is 18,500 + 5,500 = 24,000, and the ROCE is therefore 24,000/150,000 = 16%.
For division Y, the controllable profit is 10,000 + 6,000 = 16,000, and the ROCE is 16,000/100,000 = 16%.
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