Question

Selected operating data for two divisions of Outback Brewing, Ltd., of Australia are given below: Division Queensland New South Wales Sales $ 2,275,000 $ 2,781,000 Average operating assets $ 650,000 $ 515,000 Net operating income $ 232,050 $ 200,232 Property, plant, and equipment (net) $ 265,000 $ 215,000 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

Answer:

Queensland division has ROI of 35.7%

New South Wales division has ROI of 38.88%

The divisional manager at New South Sales division has a higher ROI and seems to doing better job

Explanation:

The return on investment stated in terms of margin and turnover=net operating income/sales*sales/average operating assets

For Queensland division return on investment is computed thus:

net operating income is $232,050

sales is $2,275,000

average operating assets is $650,000

return on investment=$232,050/$2,275,000*$2,275,000/$650,000=35.70%

For New South Wales division return on investment is computed thus:

net operating income is $200,232

sales is $2,781,000

average operating assets is $515,000

return on investment=$200,232/$2,781,000*$2,781,000/$515,000=38.88%