Question

Selected operating data for two divisions of Outback Brewing, Ltd., of Australia are given below: Division Queensland New South Wales Sales $ 901,000 $ 2,480,000 Average operating assets $ 530,000 $ 620,000 Net operating income $ 54,060 $ 74,400 Property, plant, and equipment (net) $ 248,000 $ 198,000 Required: 1. Compute the rate of return for each division using the return on investment (ROI) formula stated in terms of margin and turnover. (Round your answers to 2 decimal places.) 2. Which divisional manager seems to be doing the better job? Queensland division New South Wales division

Answer 1

Answer:

(1) 6%; 1.7; 10.20%

(2) 3%; 4; 12%

Explanation:

ROI = Margin × Turnover   (Note Margin in % and Turnover in Ratio)

Where,

Margin = Net operating income ÷ Sales  

Turnover = Sales ÷ Average operating assets

For Queensland:

Margin = 54,060 ÷ 901,000

            = 6% (approx)

Turnover = 901,000 ÷ 530,000

               = 1.7

ROI = 6% × 1.7

      = 10.20%

For New south wales:

Margin = 74,400 ÷ 2,480,000

            = 3% (approx)

Turnover = 2,480,000 ÷ 6,20,000

               = 4

ROI = 3% × 4

      = 12%