ACCA Applied Knowledge · Management Accounting · Monitoring performance and reporting
Hartley Ltd had operating profit of $180,000. Capital employed at the start of the year was $1,100,000 and at the end was $1,300,000. Using average capital employed, what is the return on capital employed (ROCE)?
ROCE is 15%. Average capital employed is $1,200,000, being the mean of the opening $1,100,000 and closing $1,300,000, and operating profit of $180,000 divided by this gives 15%. Using only the closing or opening figure would give a different, incorrect result.
- A13.8%
- B15.0%Correct
- C16.4%
- D18.0%
Explanation
Average capital employed = (1,100,000 + 1,300,000) / 2 = 1,200,000. ROCE = 180,000 / 1,200,000 = 15%. Using closing capital gives 13.8%, and using opening gives 16.4%.
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