Selected operating data for two divisions of Outback Brewing, Ltd., of Australia are given below: Division Queensland New South Wales Sales $ 1,219,000 $ 2,550,000 Average operating assets $ 530,000 $ 510,000 Net operating income $ 73,140 $ 76,500 Property, plant, and equipment (net) $ 253,000 $ 203,000 Required: 1. Compute the rate of return for each division using the return on investment (ROI) formula stated in terms of margin and turnover. 2. Which divisional manager seems to be doing the better job

Outback Brewing, Ltd. of Australia

Division                              Queensland       New South

                                                                           Wales

1. Rate of return                     2.6%                      0.6%

2. Queensland division manager seems to be doing the better job.

Explanation:

a) Data and Calculations:

Division                                                      Queensland       New South

                                                                                                 Wales

Sales                                                        $ 1,219,000       $ 2,550,000

Average operating assets                       $ 530,000           $ 510,000

Net operating income                                 $ 73,140             $ 76,500

Property, plant, and equipment (net)     $ 253,000           $ 203,000

Profit margin = (NOI/Sales * 100)                  6%                         3%

Asset turnover = (Sales/AOA)                      2.3x                       5x

NOI = Net operating income

AOA = Average operating assets

Return on investment (ROI) = Profit margin * Asset turnover

=                                                                  2.6%                      0.6%

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