Exercise 11-8 Computing and Interpreting Return on Investment (ROI) [L011-1] Sel

Question

Exercise 11-8 Computing and Interpreting Return on Investment (ROI) [L011-1] Selected operating data for two divisions of Outback Brewing, Ltd, of Australia are given below: Division New South Queensland Wales Sales Average operating assets Net operating income Property, plant, and equipment (net) $969,000 3,024,000 $510,000540,000 $87,210 181,440 $267,000 217,000 Required: and turnover. 2. Which divisional manager seems to be doing the better job? 1.Compute the rate of return for each division using the return on investment (RO) formula stated in terms of margin Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the rate of return for each division using the return on investment (ROI) formula stated in terms of margin

Explanation / Answer

1.

Margin = Net operating income / Sales

Turnover = Sales / Net Property, Plant and equipment

9%

(87,210 / 969,000)

3.63

(969,000 / 267,000)

6%

(181,440 / 3,024,000)

13.94

(3,024,000 / 217,000)

2.

New South Wales division manager seems to be doing the better job.

Margin (a) Turnover (b) ROI (c) = (a*b) Queensland division

9%

(87,210 / 969,000)

3.63

(969,000 / 267,000)

32.67% New South Wales division

6%

(181,440 / 3,024,000)

13.94

(3,024,000 / 217,000)

83.64%

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