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

ekkarill92 answered 2 years ago
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