Question

Selected operating data for two divisions of Outback Brewing, Ltd., of Australia are given below:

	Division
	Queensland		New South Wales
Sales	$	1,375,000	$	2,222,000
Average operating assets	$	550,000	$	505,000
Net operating income	$	96,250	$	88,880
Property, plant, and equipment (net)	$	255,000	$	205,000

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

Particulars	Queenisland	new south wales
a)Net operating income	96250	88880
b) Average operating assets	550000	505000
c) ROI=a/b×100	17.5%	17.6%

Formula for computing ROI=(net operating income÷Average assets invested)×100.

Note.For calculation of ROI we need average assets invested. In ROI calculation plants property equipment are not used.Average assets invested includes plant property and equipment.

2.In the given case division new south wales has 17.6% ROI and Queenisland division has 17.5% ROI.Hence on the basis of ROI it can be said new south wales division manager performance is better as compared to Queenisland division.