The following data pertain to British Isles Aggregates Company, a producer of sa

Question

The following data pertain to British Isles Aggregates Company, a producer of sand, gravel, and cement, for the year just ended.

Sales revenue £ 6,000,000

Cost of goods sold 3,300,000

Operating expenses 2,400,000

Average invested capital3,000,000

£ denotes the British pound sterling, the national monetary unit of the United Kingdom. Although the euro is used in most European markets, the U.K. continues to use pounds sterling for its national currency.

Required

1. Compute the company’s sales margin, capital turnover, and ROI.

2. If the sales and average invested capital remain the same during the next year, to what level would total expenses have to be reduced in order to improve the firm’s ROI to 15 percent? Total expenses must be reduced to:

Explanation / Answer

1. Sales Margin = Net Income/ Sales * 100 =

Net Income = Sales - Cost of Goods Sod - Operating Expenses = 6000000 - 3300000 - 2400000 = $300000

Sales Margin = 300000/6000000 * 100 = 5%

Capital turnover = sales/ average capital invested = 6000000 / 3000000 = 2 times

ROI = Net Income/ Investment * 100

= 300000 / 3000000 * 100 = 10%

2. If ROI = 15%

Then 15% = Net Income / 3000000 * 100

Net Income should be = $450000

Gross Profit = Sales - Cost of Goods sold = 6000000 -3300000 = $2700000

Expenses = Gross Profit - Net Income = 2700000 - 450000 = $2250000

Expenses should be reduced to $2250000

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.