Question

Selected operating data for two divisions of Outback Brewing, Ltd., of Australia are given below: E Sales Average operating assets Net operating income Property, plant, and equipment (net) Division New South Queensland Wales $2,079,000 $3,224,000 $ 630,000 $ 620,000 $ 166,320 $ 209,560 $ 263,000 $ 213,000 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.) Margin Turnover ROI Queensland division New South Wales division New South Wales division H A A % 2. Which divisional manager seems to be doing the better job? Queensland division New South Wales division

Answer 1

Answer:

	Margin	Turnover	ROI
Queensland Division	8%	3.3	26.4%
New South Wales Division	6.5%	5.2	33.8%

Explanation:

We know that,

ROI = Margin * Turnover

Where,

Margin = Net Operating Income ÷ Sales

Turnover = Sales ÷ Average Operating Assets

1.

Queensland Division

Margin = $166,320 ÷ $2,079,000 = 0.08 or 8%

Turnover = $2,079,000 ÷ $630,000 = 3.3

:. ROI = 8 % * 3.3 = 26.4%

2

New South Wales Division

Margin = $209,560 ÷ $3,224,000 = 0.065 or 6.5%

Turnover = $3,224,000 ÷ $620,000 = 5.2

ROI = 6.5% * 5.2 = 33.8%