Question

The condensed income statement for the Consumer Products Division of Fargo Industries Inc. is as follows (assuming no service department charges):

Sales | $942,000 |

Cost of goods sold | 423,900 |

Gross profit | $518,100 |

Administrative expenses | 188,400 |

Income from operations | $329,700 |

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 $1,570,000 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 $47,100
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 | % |

Answer #1

The condensed income statement for the Consumer Products
Division of Fargo Industries Inc. is as follows (assuming no
service department charges):
Sales
$1,140,000
Cost of goods sold
513,000
Gross profit
$627,000
Administrative expenses
399,000
Income from operations
$228,000
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...

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
$1,144,000
Cost of goods sold
514,800
Gross profit
$629,200
Administrative expenses
400,400
Income from operations
$228,800
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...

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
$1,848,000
Cost of goods sold
831,600
Gross profit
$1,016,400
Administrative expenses
646,800
Income from operations
$369,600
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...

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
$944,000
Cost of goods sold
424,800
Gross profit
$519,200
Administrative expenses
188,800
Income from operations
$330,400
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...

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
$1,020,000
Cost of goods sold
459,000
Gross profit
$561,000
Administrative expenses
204,000
Income from operations
$357,000
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...

Profit Margin, Investment Turnover, and
Return on Investment
The condensed income statement for the Consumer Products Division
of Tri-State Industries Inc. is as follows (assuming no support
department allocations):
Sales
$798,000
Cost of goods sold
(359,100)
Gross profit
$438,900
Administrative expenses
(239,400)
Operating income
$199,500
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...

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
$309,400
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...

A condensed income statement for the Commercial Division of
Maxell Manufacturing Inc. for the year ended December 31, 20Y9, is
as follows:
Sales
$3,500,000
Cost of goods sold
(2,480,000)
Gross profit
$1,020,000
Operating expenses
(600,000)
Operating income
$420,000
Invested assets
$2,500,000
Assume that the Commercial Division received no allocations from
support departments.
The president of Maxell Manufacturing has indicated that the
division’s return on a $2,500,000 investment must be increased to
at least 21% by the end of the next...

Divisional Income Statements and Return on Investment
Analysis
E.F. Lynch Company is a diversified investment company with
three operating divisions organized as investment centers.
Condensed data taken from the records of the three divisions for
the year ended June 30, 20Y8, are as follows:
Mutual Fund
Division
Electronic
Brokerage
Division
Investment
Banking
Division
Fee revenue
$1,360,000
$1,400,000
$1,380,000
Operating expenses
730,000
662,000
1,044,000
Invested assets
5,000,000
4,100,000
2,800,000
The management of E.F. Lynch Company is evaluating each division
as a...

The vice president of operations of Pavone Company is evaluating
the performance of two divisions organized as investment centers.
Invested assets and condensed income statement data for the past
year for each division are as follows:
Business Division
Consumer Division
Sales
$2,100,000
$2,480,000
Cost of goods sold
1,250,000
1,330,000
Operating expenses
619,000
852,400
Invested assets
750,000
2,066,667
Required:
1.
Prepare condensed divisional income statements for the year
ended December 31, assuming that there were no service department
charges.
2.
Using...

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