Question

Selected operating data for two divisions of Outback Brewing, Ltd., of Australia are given below: Division Queensland New South Wales Sales $ 784,000 $ 1,485,000 Average operating assets $ 560,000 $ 495,000 Net operating income $ 82,320 $ 118,800 Property, plant, and equipment (net) $ 245,000 $ 195,000 Required: 1. Compute the rate of return for each division using the return on investment (ROI) formula stated in terms of margin and turnover. 2. Which divisional manager seems to be doing the better job

Answer 1

Queensland 14.7%

New South Wales is 24.0%

Step-by-step explanation:

This is a case of modified return on investment since the question was specific that the return on investment should in terms margin and assets turnover.

The first task would be to compute margin and turnover whereas the return on investment would be the multiples of both performance measures.

Margin =operating income/sales

Asset turnover=sales/average operating assets

operating income/sales*sales/average operating assets=operating income/average assets

This question also require proofing the above formula as I have done.

Margin Assets turnover ROI

Queensland$82,320/$784,000=10.5%$784,000/$560,000=1.4 14.7%

South Wales$118,800/$1,485,000=8% $1,485,000/$495,000= 24.0%

R0I=margin*assets turnover

Queensland=10.5%*1.4=14.7%

New south sales=8%*3=24%