Question

East Mullett Manufacturing earned operating income last year as shown in the following income statement:

Sales $531,250

Cost of goods sold 280,000

Gross margin $251,250

Selling and administrative expense 180,900

Operating income $70,350

Less: Income taxes (@ 40%) 28,140

Net income $42,210

At the beginning of the year, the value of operating assets was $390,000. At the end of the year, the value of operating assets was $460,000.

Required: For East Mullett Manufacturing, calculate the following:

1. Average operating assets $

2. Margin (round to two decimal places) %

3. Turnover (round to two decimal places)

4. Return on investment (round to one decimal place)

Answer 1

Answer :-

1. Average operating assets = (Operating Assets at the beginning year + Operating Assets at the end year)/2

Average Operating Assets = ($390,000 + $460,000) / 2

Average Operating Assets = $425,000

2. Margin = (Operating Income / Sales ) × 100

Given, Operating Income = $70,350

Sales = $531,250

Margin = ($70,350 / $531,250) × 100

Margin = 13.24 %

3. Turnover = Sales / Average Operating Assets

Turnover = $531,250 / $425,000

Turnover = 1.25

4. Return on Investment = Margin × Turnover

Return on Investment = 13.24% × 1.25

Return on Investment = 0.166 or 16.6%

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