Question

Selected operating data for two divisions of Outback Brewing, Ltd., of Australia are given below Division New South Queensland s 1,891,000 Wales 2,700,000 540,000 135,000 211,000 Sales Average operating assets Net operating income Property, plant, and equipment (net) S 610,000 151,280 261,000 S 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? Complete this question by entering your answers in the tabs below Required 1 Required 2 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 > Required 1 Required 2

Answer 1

1) Turnover Margine ROI 24.8% Queensland Division: 8 % 3.1 New South Wales Division: 5 % 25% |2) New South Wales divisions divisional manager is seems to be doing the better job Although the margin islower than the margin of the Queensland Division, the turnover is higher (a turnover of 5, as compared to a turnover of 3.1 for the Queensland Division) The greater turnover more than offsets the lower margin,resulting in a 25% ROI as compared to a 24.8% ROI for the Queensland Division. Notice that if you look at margin alone, then the Queensland Division appears to be the stronger division This fact underscores the importance of looking at turnover as well as at margin in evaluating performancein an investment center. Workings ROI computations: ROI (Net operating income/ Sales) x (sales / Average operating assets) = Queensland Division: ($151280/ $1891000) x ($1891000 / $610000) ROI = = 0.08 x 3.1 0.248 24.80% New South Wales Division: |($135000 $2700000) x ($2700000 $540000) ROL= = 0.05 x5 0.25 25% III