The Millard Division's operating data for the past two years are provided below: Millard Division's margin in Year 2 was 120% of the margin in Year 1.The net operating income for Year 1 was:
A) $250,000
B) $163,500
C) $196,200
D) $392,400

Question

The Millard Division's operating data for the past two years are provided below:  Millard Division's margin in Year 2 was 120% of the margin in Year 1.The net operating income for Year 1 was:
A) $250,000 
B) $163,500 
C) $196,200 
D) $392,400

Quizplus · Accepted Answer

To solve the problem, we need to use the information that the margin in Year 2 was 120% of the margin in Year 1. We can set up the following equation:
Margin in Year 2 = 1.20 x Margin in Year 1
We can use the information provided in the table to find the margin in Year 2:
Margin in Year 2 = $1,050,000 ÷ $3,500,000 = 0.30 or 30%
Now we can solve for the margin in Year 1:
0.30 = 1.20 x Margin in Year 1
Margin in Year 1 = 0.30 ÷ 1.20 = 0.25 or 25%
Finally, we can use the margin in Year 1 and the total revenue to find the net operating income for Year 1:
Net Operating Income = Total Revenue x Margin
Net Operating Income in Year 1 = $1,400,000 x 0.25 = $350,000
However, we need to be careful because the question is asking for the net operating income, not the operating income. The operating income is given in the table as $300,000, but we know that it includes non-operating items. To find the net operating income, we need to subtract the non-operating items from the operating income:
Net Operating Income in Year 1 = $300,000 - $136,500 - $80,000 - $20,000 = $63,500
Therefore, the best choice is B, $163,500.

The Millard Division's Operating Data for the Past Two Years