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 Division New South Sales Average operating assets Net operating income Property, plant, and equipment (net) Queensland Wales $2,176,000 $3,445,000 $ 640,000 650,000 $ 250,240 $ 275,600 $ 264,000 214,000 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 answers to 2 decimal places.) Margi Queensland division New South Wales division Turnover 2,176,000 00 | 3,445,000 00 ROI 11.500|96 800 % % % 2. Which divisional manager seems to be doing the better job? Queensland division

Explanation / Answer

Margin Turnover ROI Queens Land 11.50% 3.4 39.10% New South Wales 8% 5.3 42.40% ROI=Margin* Turnover=Net operating Income/Sales*Sales/Average Operating Assets Queensland Division Margin=250240/2176000 11.5% Turnover=2176000/640000 3.4 ROI=11.5%*3.4 39.1% New Sounth Wales Margin=275600/3445000 8.0% Turnover=3445000/650000 5.3 ROI=8%*5.3 42.4% 2. The manager of the New South Wales Division seems to be doing the better job. Although her margin is 3.5% percentage points lower than the margin of the Queensland Division, her turnover is higher (a turnover of 5.3, as compared to a turnover of 3.4 for the Queensland Division). The greater turnover more than offsets the lower margin, resulting in a42.4% ROI, as compared to an 39.1% ROI for the other division. Note that if you look at margin alone, then the Queensland Division appears to be the stronger division. This fact underscores the importance of looking at turnover as well as at margin in evaluating performance in an investment cente

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