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.

Answer a.
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 % 
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  ($353,600 / $884,000) * 100  40 % 
Investment turnover  Sales / Total assets  $884,000 / $2,210,000  0.4 
Rate of return on investment  Profit margin * Investment turnover  40 % * 0.4  16% 
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