Exercise 98 Computing and Interpreting Return on Investment

Exercise 9-8 Computing and Interpreting Return on Investment (RO) [LO9-1 Selected operating data for two divisions of Outback Brewing, Ltd., of Australia are given below Division New South Queensland Sales Average operating assets Net operating income Property, plant, and equipment (net) $1,891,000 $2,700,000 610,000 $ 540,000 $151,280 S 135,000 $ 261,000 $ 211,000 Required: 1. Compute the rate of return for each division using the return on investment (ROl) formula stated in terms of margin and turnover. (Round your Turnover answers to 2 decimal places. Round your Margin and Rol percentage answers to 2 decimal places (ie, 0.1234 should be entered as 12.34).) Margin Turnover RO Queensland division New South Wales division 2 Which dviaional manager seems t e doingthe etterir?n @ Queensland division New South Wales division

Solution

Margin (A)

Turnover (B)

ROI (A * B)

Queensland Division

8%

3.1

24.8%

New South wales Division

5%

5

25%

Margin = Net operating Income/Sales

Queensland Division:-

Margin= 151280/1891000 = 8%

New South wales Division :-

Margin = 135000/2700000 = 5%

Turnover Ratio = Sales/Avg Operating Asset

Queensland Division:-

   = 1891000/610000 = 3.1

New South wales Division :-

     = 2700000/540000 = 5

	Margin (A)	Turnover (B)	ROI (A * B)
Queensland Division	8%	3.1	24.8%
New South wales Division	5%	5	25%