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 $ 1,080,000 $ 2,385,000 Average operating assets $ 600,000 $ 530,000 Net operating income $ 70,200 $ 83,475 Property, plant, and equipment (net) $ 241,000 $ 191,000

Explanation / Answer

Margin = Net operating income/Sales Queensland 6.50% =70200/1080000 New South Wales 3.50% =83475/2385000 Turnover = Sales/Average operating assets Queensland 1.8 =1080000/600000 New South Wales 4.5 =2385000/530000 ROI = Margin*Turnover Queensland 11.70% =6.5%*1.8 New South Wales 15.75% =3.5%*4.5 2 New South Wales is doing the better job as itsROI is higher

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