Selected operating data for two divisions of Outback Brewing, Ltd., of Australia

Question

Selected operating data for two divisions of Outback Brewing, Ltd., of Australia are given below:

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?

Division Queensland New South Wales Sales $ 1,375,000 $ 2,222,000 Average operating assets $ 550,000 $ 505,000 Net operating income $ 96,250 $ 88,880 Property, plant, and equipment (net) $ 255,000 $ 205,000

Explanation / Answer

Formula for computing ROI=(net operating income÷Average assets invested)×100.

Note.For calculation of ROI we need average assets invested. In ROI calculation plants property equipment are not used.Average assets invested includes plant property and equipment.

2.In the given case division new south wales has 17.6% ROI and Queenisland division has 17.5% ROI.Hence on the basis of ROI it can be said new south wales division manager performance is better as compared to Queenisland division.

Particulars Queenisland new south wales a)Net operating income 96250 88880 b) Average operating assets 550000 505000 c) ROI=a/b×100 17.5% 17.6%

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