Question

Forchen, Inc., provided the following information for two of its divisions for last year:

	Small Appliances Division	Cleaning Products Division
Sales	$41,604,000	$34,800,000
Operating income	3,744,360	1,392,000
Operating assets, January 1	6,394,000	5,600,000
Operating assets, December 31	7,474,000	6,000,000

Required:

1. For the Small Appliances Division, calculate:

a. Average operating assets	$	____
b. Margin	____	%
c. Turnover
d. Return on investment (ROI)	____	%

2. For the Cleaning Products Division, calculate:

a. Average operating assets	$	____
b. Margin	____	%
c. Turnover
d. Return on investment (ROI)	____	%

3. What if operating income for the Small Appliances Division was $2,080,200? How would that affect average operating assets? Margin? Turnover? ROI? Calculate any changed ratios. When required, round the percent to four decimal places before converting to a percentage. For example, .88349 would be rounded to .8835 and entered as 88.35. Enter "0", where ever required.

Average operating assets	HIGHER/LOWER/UNAFFECTED	by ____ %
Margin	HIGHER/LOWER/UNAFFECTED	by ____ %
Turnover	HIGHER/LOWER/UNAFFECTED	by ____ %
Return on investment (ROI)	HIGHER/LOWER/UNAFFECTED	by ____ %

Answer 1

1. Small appliances division

Average operating assets = ($6,394,000+$7,474,000)/2 =$6,934,000

Margin = Operating income/ Sales =$3,744,360/$41,604,000 =0.09

Turnover = Sales / Average operating assets =$41,604,000/$6,934,000 =6

Return on investment = margin × Turnover =0.09×6=0.54

2. Cleaning products division

Average operating assets =($5,600,000+$6,000,000)/2 =$5,800,000

Margin =$1,392,000/$34,800,000 =0.04

Turnover =$34,800,000/$5,800,000 =6

Return on investment =0.04×6 =0.24

3.

Average operating assets=$6,934,000

Margin=$2,080,200/$41,604,000 =0.05

Turnover =6

Return on investment =0.05×6 =0.3

_______×_______