33 The Millard Divisions operating data for the past two yea

33) The Millard Division\'s operating data for the past two years are provided below: Year 1 Year 2 Retum on investment Net operating income Tumover Margin Sales 1200 | 36% 360,000 3,200,00 Millard Division\'s margin in Year 2 was 150% of the margin in Year 1. The tumover for Year I was: A) 3.0 B) 4.0 C) 1.5 D) 1.2

Solution

(c) 1.5 Year 1 Year 2 Margin 12% 36% Net Operating Income $360,000 Turnover 3 Margin Sales $3,200,000 Year - 2 Sales = Operating Assets x Turnover Operating Assets = Net operating income / Return on Investment = $360,000/36% = $1,000,000 Therefore Sales = $1,000,000 x 3 = $3,000,000 Margin = Net operating income / Sales = $360,000/$3,000,000 = 12.00% Year -1 Given that Year Margin was 150% of Year 1 Margin So year 1 Margin = 12%/150% = 8.00% Net Operating Income = Margin x Sales = 8% x $3,200,000 = $256,000 Operating Assets = Net operating income / Return on Investment = $256,000/12% = $2,133,333 Turnover = Sales/Operating Assets = $3,200,000/$2,133,333 = 1.5