Question

Calculating Average Operating Assets, Margin, Turnover, and Return on Investment Barnard Manufacturing earned operating income last year as shown in the following income statement: Sales $4,000,000 Cost of goods sold 2,100,000 Gross margin $1,900,000 Selling and administrative expense 1,100,000 Operating income $ 800,000 Less: Income taxes (@ 40%) 320,000 Net income $480,000 At the beginning of the year, the value of operating assets was $2,700,000. At the end of the year, the value of operating assets was $2,300,000. Required: For Barnard Manufacturing, calculate: 1. Average operating assets $ 2. Margin % 3. Turnover 4. Return on investment

Answer 1

Answer:

1. Average operating assets: $2,500,000;

2. The margin: 12.00%;

3. Turnover: 1.60;

4. Return on investment: 19.20%.

Explanation:

1. Average operating assets: ( Beginning operating asset + Ending operating asset) / 2 = ( 2,700,000 + 2,300,000) / 2 = $2,500,000;

2. The margin = Net operating income / Sales = 480,000 / 4,000,000 = 12%;

3. Turnover = Sales / Average operating assets = 4,000,000 / 2,500,000 = 1.60;

4. Return on investment = Net operating income / Average operating assets = 480,000/2,500,000 = 19.20%.