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. 2. Which divisional manager seems to be doing the better job

Answer 1

Outback Brewing, Ltd. of Australia

Division Queensland New South

Wales

1. Rate of return 2.6% 0.6%

2. Queensland division manager seems to be doing the better job.

Step-by-step explanation:

a) Data and Calculations:

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

Profit margin = (NOI/Sales * 100) 6% 3%

Asset turnover = (Sales/AOA) 2.3x 5x

NOI = Net operating income

AOA = Average operating assets

Return on investment (ROI) = Profit margin * Asset turnover

= 2.6% 0.6%