Question

Selected operating data for two divisions of Outback Brewing, Ltd., of Australia are given below: Sales Average operating assets Net operating income Property, plant, and equipment (net) Division New South Queensland Wales $ 1,159,000 $1,617,000 $ 610,000 $ 490,000 $ 127,490 $ 129,360 $ 240,000 $ 190,000 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

Margin = Net Operating income/Sales
Turnover = Sales/Average Operating assets
ROI = Net Operating Income/Average Operating assets
1
	Margin	Turnover	ROI
Queensland division	11.00%	1.90	20.90%
New South Wales division	8.00%	3.30	26.40%
2
New South Wales division seems to be doing better, as it's ROI is higher
Workings for 1:
	Margin	Turnover	ROI
Queensland division	=127490/1159000	=1159000/610000	=11%*1.90
New South Wales division	=129360/1617000	=1617000/490000	=8%*3.30