Reference no: EM132687295
Problem - Profit margin, investment turnover, and rate of return on investment
The condensed income statement for the Domestic Division of Fahkahany Industries Inc. is as follows (assuming no service department charges):
Sales $4,500,000
Cost of goods sold 2,611,000
Gross profit $1,889,000
Administrative expenses 539,000
Income from operations $1,350,000
The manager of the Domestic Division is considering ways to increase the rate of return on investment.
Required -
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 Domestic Division, assuming that $3,750,000 of assets have been invested in the Domestic Division.
b. If expenses could be reduced by $450,000 without decreasing sales, what would be the impact on the profit margin, investment turnover, and rate of return on investment for the Domestic Division?