Question

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

	Division
	Queensland		New South Wales
Sales	$	1,219,000	$	2,550,000
Average operating assets	$	530,000	$	510,000
Net operating income	$	73,140	$	76,500
Property, plant, and equipment (net)	$	253,000	$	203,000

Required:
1.	Compute the rate of return for each division using the return on investment (ROI) formula stated in terms of margin and turnover. (Round your answers to 2 decimal places.)

     

2.	Which divisional manager seems to be doing the better job?
	multiple choice Queensland division New South Wales division

Answer 1

1.

For Queensland division

Margin = Net operating income/Sales

= 73,140/1,219,000

= 6%

Turnover = Sales/Average operating assets

= 1,219,000/530,000

= 2.3

Return on investment = Net operating income/Average operating assets

= 73,140/530,000

= 13.8%

For New South Wales

Margin = Net operating income/Sales

= 76,500/2,550,000

= 3%

Turnover = Sales/Average operating assets

= 2,550,000/510,000

= 5

Return on investment = Net operating income/Average operating assets

= 76,500/510,000

= 15%

2.

Since Return on investment of New South wales division is higher, hence the manager of New South wales division is doing better.