Profit Margin, Investment Turnover, and Rate of Return on Investment The condens
ID: 2511327 • Letter: P
Question
Profit Margin, Investment Turnover, and Rate of Return on Investment
The condensed income statement for the International Division of King Industries Inc. is as follows (assuming no service department charges):
The manager of the International Division is considering ways to increase the rate of return on investment.
a. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment of the International Division, assuming that $2,210,000 of assets have been invested in the International Division. Round all answers to one decimal place.
b. If expenses could be reduced by $44,200 without decreasing sales, what would be the impact on the profit margin, investment turnover, and rate of return on investment for the International Division? Round all answers to one decimal place.
Profit Margin, Investment Turnover, and Rate of Return on Investment
The condensed income statement for the International Division of King Industries Inc. is as follows (assuming no service department charges):
Sales $884,000 Cost of goods sold 397,800 Gross profit $486,200 Administrative expenses 176,800 Income from operations $309,400The manager of the International Division is considering ways to increase the rate of return on investment.
a. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment of the International Division, assuming that $2,210,000 of assets have been invested in the International Division. Round all answers 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 rate of return on investment for the International Division? Round all answers to one decimal place.
Profit margin % Investment turnover Rate of return on investment %Explanation / Answer
Answer a.
Answer b
New income from operations due to reduction in cost = $309,400 + $44,200 = $353,600
Particulars Formula Working Answer Profit margin (Income from operations / Sales) * 100 ($309,400 / $884,000) * 100 35 % Investment turnover Sales / Total assets $884,000 / $2,210,000 0.4 Rate of return on investment Profit margin * Investment turnover 35 % * 0.4 14 %Related Questions
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