Question
In: Accounting
Required information [The following information applies to the questions displayed below.] A food manufacturer reports the...
Required information
[The following information applies to the questions
displayed below.]
A food manufacturer reports the following for two of its
divisions for a recent year.
| ($millions) | Beverage Division | Cheese Division | |||||
| Invested assets, beginning | $ | 2,662 | $ | 4,455 | |||
| Invested assets, ending | 2,593 | 4,400 | |||||
| Sales | 2,681 | 3,925 | |||||
| Operating income | 349 | 634 | |||||
1. Compute return on investment.
2. Compute profit margin.
3. Compute investment turnover for the
year.
Solutions
Expert Solution
| 1) | Beverage Division | Cheese Division | |||||||||
| Return on investment | 13.28% | 14.32% | |||||||||
| Working: | |||||||||||
| Return on Investment | = | Operating Income /Average investment | |||||||||
| Beverage Division | Cheese Division | ||||||||||
| a. | Operating income | 349 | 634 | ||||||||
| b. | Invested assets, beginning | 2662 | 4455 | ||||||||
| Invested assets, ending | 2593 | 4400 | |||||||||
| Total | 5255 | 8855 | |||||||||
| / | 2 | 2 | |||||||||
| Average Invested assets | 2,627.50 | 4,427.50 | |||||||||
| c. | Return on Investment | 13.28% | 14.32% | ||||||||
| a/b | |||||||||||
| 2) | |||||||||||
| Beverage Division | Cheese Division | ||||||||||
| Profit Margin | 13.02% | 16.15% | |||||||||
| Working: | |||||||||||
| Profit Margin | = | Operating income/Sales | |||||||||
| Beverage Division | Cheese Division | ||||||||||
| Operating income (a) | 349 | 634 | |||||||||
| Sales (b) | 2681 | 3925 | |||||||||
| Profit Margin (a) /(b) | 13.02% | 16.15% | |||||||||
| 3) | Beverage Division | Cheese Division | |||||||||
| Investment Turnover | 1.02 | times | 0.89 | times | |||||||
| Working: | |||||||||||
| Investment Turnover | = | Sales /Average Investment | |||||||||
| Beverage Division | Cheese Division | ||||||||||
| Sales (a) | 2681 | 3925 | |||||||||
| Average Investment (b) | 2,627.50 | 4,427.50 | |||||||||
| Investment Turnover (a) /(b) | 1.02 | 0.89 | |||||||||
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