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 $2,210,000 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 $44,200 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 $884,000 397,800 $486,200 176,800 $309,400

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a. Rate of Return on investment= Profit Margin * Investment Turnover Rate of Return on investment= Income From Operations/Sales * Sales/Invested Assets Rate of Return on investment= 309400/884000 * 884000/2210000 Rate of Return on investment= 35% * 0.4 Rate of Return on investment= 14% Profit Margin 35% Investment Turnover 0.4 Rate of Return on investment 14% b. Rate of Return on investment= Profit Margin * Investment Turnover Rate of Return on investment= Income From Operations/Sales * Sales/Invested Assets Rate of Return on investment= (309400+44200)/884000 * 884000/2210000 Rate of Return on investment= 40% * 0.4 Rate of Return on investment= 16% Impact Profit Margin 40% increased from 35% to 40% Investment Turnover 0.4 No Change Rate of Return on investment 16% increased from 14% to 16%

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