1. Winona Industries has manufactured prefabricated houses for over 10 years. The houses are constructed in sections to be assembled on customers’ lots. Winona expanded into the precut housing market when it acquired Fairmont Company, 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. Winona designated the Fairmont Division as an investment center. Wyalusing uses return on investment (ROI) as a performance measure with investment defined as average productive assets. Management bonuses are based in part on ROI. All investments are expected to earn a minimum return of 15 percent before income taxes. The division’s productive assets were $12,600,000 at the end of 20×1, a 5 percent increase over the balance at the beginning of the year. The 20×1 income statement for Fairmont Division follows.
