Selected operating data for two divisions of outback brewing, ltd., of australia are given below: division queensland new south wales sales $ 901,000 $ 2,480,000 average operating assets $ 530,000 $ 620,000 net operating income $ 54,060 $ 74,400 property, plant, and equipment (net) $ 248,000 $ 198,000 required: 1. compute the rate of return for each division using the return on investment (roi) formula stated in terms of margin and turnover. (round your answers to 2 decimal places.) 2. which divisional manager seems to be doing the better job? queensland division new south wales division

Answers

Queensland Wale -18%

New South Wales-21%

The manager of New South seems to be doing  a better job with a higher return on investment of 21%

Explanation:

Return on investment stated in terms of margin and turnover combines the margin formula and the asset the turnover formula as below:

Return on investment=Net operating income/sales*sales/average operating assets:

Queensland Wales:

Net operating income is $360,000

sales is $4,000,000

average operating assets is $2,000,000

return on investment=$360,000/$4000,000*$4000,000/$2000,0=18%

New South :

Net operating income is $420,000

sales is $7,000,000

average operating assets is $2,000,000

return on investment=$420,000/$7000,000*$7000,000/$2000,000=21%

Queensland division has ROI of 35.7%

New South Wales division has ROI of 38.88%

The divisional manager at New South Sales division has a higher ROI and seems to doing better job

Explanation:

The return on investment stated in terms of margin and turnover=net operating income/sales*sales/average operating assets

For Queensland division return on investment is computed thus:

net operating income is $232,050

sales is $2,275,000

average operating assets is $650,000

return on investment=$232,050/$2,275,000*$2,275,000/$650,000=35.70%

For New South Wales division return on investment is computed thus:

net operating income is $200,232

sales is $2,781,000

average operating assets is $515,000

return on investment=$200,232/$2,781,000*$2,781,000/$515,000=38.88%

Queensland 14.7%

New South Wales is 24.0%

Explanation:

This is a case of modified  return on investment since the question was specific that the  return on investment  should in terms margin and assets turnover.

The first task would be to compute margin and turnover  whereas the return on investment  would be  the multiples of both performance measures.

Margin =operating income/sales

Asset turnover=sales/average operating assets

operating income/sales*sales/average operating assets=operating income/average assets

This question also require proofing the above formula as I have done.

                                 Margin                  Assets turnover                      ROI

Queensland$82,320/$784,000=10.5%$784,000/$560,000=1.4     14.7%

South Wales$118,800/$1,485,000=8% $1,485,000/$495,000=         24.0%

R0I=margin*assets turnover

Queensland=10.5%*1.4=14.7%

New south sales=8%*3=24%

1. Consider the following calculations

2. Manager of New South Wales division is doing better.

Explanation:

1.  Queensland division

Margin = Net operating income/Sales

= 71,610/1,302,000

= 5.5%

Turnover = Sales/Average operating assets

= 1,302,000/620,000

= 2.1

ROI = Margin x Turnover

= 5.5% x 2.1

= 11.55%

New South Wales division

Margin = Net operating income/Sales

= 61,100/2,444,000

= 2.5%

Turnover = Sales/Average operating assets

= 2,444,000/520,000

= 4.7

ROI = Margin x Turnover

= 2.5% x 4.7

= 11.75%

2.  Since return on investment (ROI) of New South Wales division is more than return on investment (ROI) of Queensland division, thus it can be concluded that manager of New South Wales division is doing better.

1. 18% and 21%

2. Queensland

Explanation:

The formula to compute the rate of return in terms of margin and turnover is shown below:

1. For New south wales

Margin = Net operating income ÷ sales

           = $360,000 ÷ $4,000,000

           = 9%

And,

Turnover = sales ÷ average operating assets

               = $4,000,000 ÷ 2,000,000

               = 2

ROI = Margin x turnover

     = 9% × 2

     = 18%

For Queensland

Margin = Net operating income ÷  sales

           = $420,000 ÷ $7,000,000

           = 6%

And,

Turnover = Sales ÷ average operating assets

                = $7,000,000 ÷ 2,000,000

                = 3.5

So,

ROI = Margin × turnover

       = 6% × 3.5

       = 21%

2. Based on Return on enlistment, the Queensland doing the better job as it contains the high return on investment

(1) 6%; 1.7; 10.20%

(2) 3%; 4; 12%

Explanation:

ROI = Margin × Turnover   (Note Margin in % and Turnover in Ratio)

Where,

Margin = Net operating income ÷ Sales  

Turnover = Sales ÷ Average operating assets

For Queensland:

Margin = 54,060 ÷ 901,000

            = 6% (approx)

Turnover = 901,000 ÷ 530,000

               = 1.7

ROI = 6% × 1.7

      = 10.20%

For New south wales:

Margin = 74,400 ÷ 2,480,000

            = 3% (approx)

Turnover = 2,480,000 ÷ 6,20,000

               = 4

ROI = 3% × 4

      = 12%



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