Final answer:
AllState Trucking Co. has a more favorable return-on-assets ratio than return-on-sales ratio compared to the industry because it has lower sales but higher profits, indicating efficient asset use.
Step-by-step explanation:
The question asks why AllState Trucking Co.’s return-on-assets (ROA) ratio is more favorable than the return-on-sales (ROS) ratio compared to the industry. The ROA metric measures a company’s ability to generate income from its assets, while the ROS ratio looks at how much profit is made from sales revenue.
If AllState’s ROA is more favorable, it means the company is more effective at converting its assets into profits. On the other hand, if the ROS is less favorable, it implies that the company earns less profit per dollar of sales. The correct answer to why this discrepancy exists for AllState compared to the industry is: b) AllState has lower sales but higher profits. This suggests that, although AllState may generate less in sales compared to the industry, it manages its assets effectively to produce a higher profit margin.
Options a), c), and d) do not align with the given scenario. Higher industry sales (a) and AllState having higher sales but lower profits (c) would not result in a more favorable ROA. Additionally, if the industry had a more efficient asset management system (d), it would likely have a higher ROA than AllState, contrary to what is suggested by the question.