Question

Selected operating data for two divisions of Outback Brewing, Ltd., of Australia are given below:

	Division
	Queensland		New South Wales
Sales	$	864,000	$	2,016,000
Average operating assets	$	540,000	$	630,000
Net operating income	$	60,480	$	80,640
Property, plant, and equipment (net)	$	247,000	$	197,000

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?

Answer 1

Return on investment AKA ROI) is a measurement of performance which shows the returns on the average operating assets.
Formula to Calculate ROI = Margin X TurnOver   ( Note Margin in % and Turn Over in Ratio )
Where Margin = Net operating income / Sales   & TurnOver = Sales / Average operating assets
Below is the Calculation
		Queensland	New South Wales
A	Sales	8,64,000	20,16,000
B	Average operating assets	5,40,000	6,30,000
C	Net operating income	60,480	80,640
D	Property, plant, and equipment (net)	2,47,000	1,97,000
M	Margin % (C/A)	7.00%	4.00%
T	Turnover (A/B)	1.6	3.2
ROI (MXT)	Return on investment	11.20%	12.80%
1)
	Margin	Turnover	ROI
Queensland	7.00%	1.6	11.20%
New South Wales	4.00%	3.2	12.80%
2) Divisional manager of New South Wales is doing the better job as the ROI is greater for New South Wales