Calculating Average Operating Assets, Margin, Turnover, and Return on Investment

Question

Calculating Average Operating Assets, Margin, Turnover, and Return on Investment

East Mullett Manufacturing earned operating income last year as shown in the following income statement:

At the beginning of the year, the value of operating assets was $1,600,000. At the end of the year, the value of operating assets was $1,400,000. Round your answers to two decimal places, when rounding is required.

Required:

For East Mullett Manufacturing, calculate:

Sales $3,750,000 Cost of goods sold 2,250,000 Gross margin $1,500,000 Selling and administrative expense 1,200,000 Operating income $ 300,000 Less: Income taxes (@ 40%) 120,000    Net income $ 180,000

Explanation / Answer

Average operating assets (1600000+1400000)/2 1500000 Margin =Operating income /Sales =300000/3750000 8.00% Turnover =Sales/average operating aseet                                                   2.50 Return on investment (Operating income/Average opearing asset)=300000/1500000 20.00%

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