Based on the information given, Legume Division's net operating income last year will be $29580.
Firstly,we will calculate the turnover which will be:
= Sales / Operating costs
= $870000 / 2
= $435000
The return on investment will be:
= Net operating income / Operating assets
Therefore, the net operating income will be:
= $435000 × 6.8%
= $29580
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The Legume Division's net operating income last year was $29,580.
The net operating income is the income after deducting the cost of goods sold and operating expenses from sales revenue.
Minimum required rate of return = 6%
Return on investment (ROI) = 6.8%
Sales revenue = $870,000
Turnover on operating assets = 2 times
Operating assets = $435,000 ($870,000/2)
Net operating income = ROI x Operating Assets
= $29,580 ($6.8% of $435,000)
Thus, the Legume Division's net operating income last year was $29,580.
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