Question

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 investment of the Consumer Products Division, assuming that $1,700,000 of assets have been invested in the Consumer Products Division. Round the investment turnover to one decimal place.

Profit margin	fill in the blank 1 %
Investment turnover	fill in the blank 2
Rate of return on investment	fill in the blank 3 %

b. If expenses could be reduced by $51,000 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	fill in the blank 4 %
Investment turnover	fill in the blank 5
Rate of return on investment	fill in the blank 6 %

Answer 1