Question

Selected operating data for two divisions of Outback Brewing, Ltd., of Australia are given below (the currency is the Australian dollar, denoted here as $):
Division
Queensland New South
Wales
Sales $4,000,000 $7,000,000
Average operating assets $2,000,000 $2,000,000
Net operating income $360,000 $420,000
Property, plant, and equipment (net) $950,000 $800,000
Requirement 1:
Compute the rate of return for each division using the return on investment (ROI) formula stated in terms of margin and turnover.
Requirement 2:
Which divisional manager seems to be doing the better job?

Answer 1

Answer:

Queensland Wale -18%

New South Wales-21%

The manager of New South seems to be doing  a better job with a higher return on investment of 21%

Explanation:

Return on investment stated in terms of margin and turnover combines the margin formula and the asset the turnover formula as below:

Return on investment=Net operating income/sales*sales/average operating assets:

Queensland Wales:

Net operating income is $360,000

sales is $4,000,000

average operating assets is $2,000,000

return on investment=$360,000/$4000,000*$4000,000/$2000,0=18%

New South :

Net operating income is $420,000

sales is $7,000,000

average operating assets is $2,000,000

return on investment=$420,000/$7000,000*$7000,000/$2000,000=21%