ACCA Applied Knowledge · Management Accounting · Performance measurement - overview
Division R reports the following: sales $2,000,000, operating profit $300,000, capital employed $1,500,000. Management wants to compare it with a rival. Which pair of figures correctly gives R's profit margin and asset turnover?
The profit margin is 15% and asset turnover is 1.33 times. Margin is operating profit over sales, 300,000 divided by 2,000,000, and turnover is sales over capital employed, 2,000,000 divided by 1,500,000. Multiplied, they give ROCE of 20%.
- A15% and 1.33 timesCorrect
- B20% and 0.75 times
- C15% and 0.75 times
- D20% and 1.33 times
Explanation
Profit margin = 300,000/2,000,000 = 15%. Asset turnover = 2,000,000/1,500,000 = 1.33 times. Product = 20% = ROCE (300,000/1,500,000). The distractors invert the turnover or use ROCE as the margin.
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