Question

The Nacho Division of the Tex-Mex Company has a return on investment (ROI) of 12%, sales of $217,000, and an asset turnover of 4. What was Nacho's operating income?
a. $1,628.
b. $6,510.
c. $104,160.
d. $26,040.

Answer 1

Answer:   Nacho's operating income= b. $6,510.

Explanation:

First, we calculate the Total Asset of the Divison.

Asset turnover = Sales/ Total Assets

Total Assets = Sales/ Asset turnover

= $217,000/ 4

Asset turnover=$54,250

Also Return on investment = Operating Income/ Total Assets

Therefore Operating Income=Return on investment x Total Assets

= 12% X 54,250

=$6,510