The following information pertains to the three divisions of Merrymount Company: $\begin{array}{lrrr}&\text { Division } X& \text { Division } Y& \text { Division } Z\
\text { Sales } & ? & ? & 1,250,000 \
\text { Net operating income } & \$ 36,000 & \$ 25,000 & \$ 7,000 \
\text { Average operating assets } & 300,000 & ? & ? \
\text { Retum on investment } & ? & 20 \% & 15 \% \
\text { Margin } & 0.10 & 0.05 & ? \
\text { Turnover } & 1.5 & ? & ? \
\text { Target ROI } & 15 \% & 12 \% & 10 \%
\end{array}$ What are the sales for Division Y?
A)$500,000
B)$125,000
C)$208,333
D)$25,000

Question

Quizplus · Accepted Answer

The return on investment (ROI) for Division Y is 20%, and the margin is 0.05. ROI is calculated as Margin multiplied by Turnover. Therefore, Turnover = ROI / Margin = 0.20 / 0.05 = 4. The formula for Turnover is Sales / Average Operating Assets. Since the net operating income is $25,000, and the margin is 0.05, Sales = Net Operating Income / Margin = $25,000 / 0.05 = $500,000.

The Following Information Pertains to the Three Divisions of Merrymount