Profit Margin, Investment Turnover, and return on investment The condensed incom

Question

Profit Margin, Investment Turnover, and return on investment The condensed income statement for the Consumer Products Division of Fargo Industries Inc. is as follows (assuming no service department charges): Sales Cost of goods sold Gross profit Administrative expenses Income from operations The manager of the Consumer Products Division is considering ways to increase the return on investment. a. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment of the Consumer Products Division, assuming that $1,360,000 of assets have been invested in the Consumer Products Division. Round the investment turnover to one decimal place. Profit margin Investment turnover Rate of return on investment b. If expenses could be reduced by $40,800 without decreasing sales, what would be the impact on the profit margin, investment turnover, and return on investment for the Consumer Products Division? Round the investment turnover to one decimal place. Profit margin Investment turnover Rate of return on investment $816,000 367,200 $448,800 204,000 $244,800

Explanation / Answer

a) Calculate following :

b) Calculate following expense after reduced by $40800

35%

Profit margin (244800*100/816000) 30% Investment turnover (816000/1360000) 0.60 Rate of return on investment (30%*.60) 18%

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