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Part A

A company rents a small building with 10,000 square feet of space for $100,000 per year. The rent is allocated to the company's three departments on the basis of the value of the space occupied by each. Department One occupies 1,500 square feet of ground-floor space, Department Two occupies 3,500 square feet of ground-floor space, and Department Three occupies 5,000 square feet of second-floor space. If rent for comparable floor space in the neighborhood averages $15.00 per square foot for ground-floor space and $10.00 per square foot for second-floor space, what annual rent expense should be charged to each department? Part B

Silver Fitness is a regional chain of health clubs. The managers of the clubs, who have authority to make investments as needed, are evaluated based largely on return on investment (ROI). The companys Colorado Springs club reported the following results for the past year:

Sales $1,400,000

Net Operating Income $70,000

Average Operating Assets $350,000

Required:

The following questions are to be considered independently. Carry out all computations to two

decimal places.

1. Compute the clubs return on investment (ROI).

2. Compute the clubs profit margin and investment turnover.

3. Assume the manager can increase sales 20% while both profit margin and average operating assets remain unchanged. (a) Compute the clubs ROI. (b) Compute the investment turnover.

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