Question

Calculating Average Operating Assets, Margin, Turnover, and Return on Investment 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 195,500 Operating income $55,750 Less: Income taxes (@ 40%) 22,300 Net income $33,450 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

1. $425,000

2. 10.49%

3. 1.25

4. 13.11%

Step-by-step explanation:

The computations are shown below:

1. For Average operating assets

= (Beginning Operating Assets + Ending Operating Assets) ÷ 2

= (390,000 + 460,000) ÷ 2

= $425,000

2. For margin:

= Net Operating Income ÷ Sales × 100

= $55,750 ÷ $531,250 × 100

= 10.49%

3. For turnover:

= Sales ÷ Average Operating Assets

= $531,250 ÷ $425,000

= 1.25

4. For return on investment:

= Net Operating Income ÷ Average Operating Assets

= $55,750 ÷ $425,000

= 13.11%