Question

Du Pont's 2000 segment reporting showed that Polyester had sales of $2,553 & operating income of $73, while Specialty Fibers had sales of $3,452 & operating income of $690.
This indicates that:

a) Specialty fibers had a higher operating return than Polyester (20.0% vs. 2.9%).
b) Polyester had a higher operating return than Polyester.
c) Du Pont should discontinue Specialty fibers & concentrate exclusively on Polyester.
d) Polyester had an operating return of over 30%.

Answer 1

Answer:

The correct answer is option (a).

Explanation:

According to the scenario, the given data are as follows:

Sales of polyester = $2,553

Operating income = $73

So, Operating return on polyester =  ( Operating income ÷ Sales of polyester ) × 100

= ($73 ÷ $2,553) × 100

= 2.86% or 2.9%

Now Sales of fiber = $3,452

Operating income = $690

So, Operating return on fiber =  ( Operating income ÷ Sales of fiber ) × 100

= ($690 ÷ $3,452) × 100

= 19.99% or 20%