Question

The XYZ Division of K Company last period generated an ROI of 10%, on sales of $10 million. Profit for the division was $250,000. Given this information, the asset turnover (rounded to one decimal place) was ______.

Option 1:
A. 2.5

Option 2:
B. 1.0

Option 3:
C. 0.025

Option 4:
D. 25.0

Answer 1

The asset turnover is calculated by dividing sales by total assets. With an ROI of 10% and a profit of $250,000, the total assets are $2,500,000. So, the asset turnover equals $10,000,000 in sales divided by $2,500,000 in assets, which equals 4.0, an answer not listed in the options.

Step-by-step explanation:

To determine the asset turnover, we can use the formula for return on investment (ROI), which is: ROI = Net Income / Assets. We also know that Asset Turnover = Sales / Assets. Given that ROI is equal to 10% and the profit (Net Income) is $250,000, we can calculate the total assets used to generate this ROI.

Assets = Net Income / ROI = $250,000 / 0.10 = $2,500,000.

Using the Assets figure, we can then calculate the Asset Turnover by dividing Sales by Assets:

Asset Turnover = Sales / Assets = $10,000,000 / $2,500,000 = 4.0.

Thus, the correct answer is not listed among the provided options.