$*$P$10-7$C Venice Industries has manufactured prefabricated garages for over $20$ years. The

garages are constructed in sections to be assembled on customers' lots. Venice expanded

into the precut housing market when it acquired Custom Enterprises, one of its suppliers.

In this market, various types of lumber are precut into the appropriate lengths, banded

into packages, and shipped to customers' lots for assembly. Venice designated the Custom

Division as an investment center.

Venice uses return on investment $($ROI$)$ as a performance measure with investment

defined as average operating assets. Management bonuses are based in part on ROI. All

investments are expected to earn a minimum rate of return of $16\%.$ Custom Enterprise's

ROI has ranged from $21\mathrm{.}9\%$ to $23\mathrm{.}3\%$ since it was acquired. Custom had an investment

opportunity in $2017$ that had an estimated ROI of $19\%.$ Custom's management decided

against the investment because it believed the investment would decrease the division's

overall ROI.

Selected financial information for Custom Enterprises are presented below. The

division's average operating assets were $$9,000,000$ for the year $2017.$

CUSTOM ENTERPRISES DIVISION

Selected Financial Information

For the Year Ended December $31,2017$

Instructions

$($a$)$ Calculate the following performance measures for $2017$ for the Custom Enterprises

Division.

$(1)$ Return on investment $($ROI$).$

$(2)$ Residual income.

$($b$)>$ Would the management of Custom Enterprises have been more likely to

accept the investment opportunity it had in $2017$ if residual income were used as a

performance measure instead of ROI? Explain your answer.