Question

1. Total net profit margin measures:

1. Productive and efficient use of only property plant and equipment
2. Return to common shareholders
3. Annual number of times inventory is turned into a sale
4. Net income dollars generated by each dollar of sales and is used to interpret management’s ability to control expenses
5. Ability of the firm to generate sales through the effective and efficient use of assets

______2. T or F The total asset turnover component of the DuPont method measures the ability of management to generate sales through effective and efficient cost control. (if false, identify and correct the error)

______3. If gross profit margin decreased from the prior year, this could be due to all the following, except:

1. Inventory cost increases and no selling price increase
2. Increasing sales prices and stable inventory costs
3. Sales mix shifted to lower margin products
4. Stable volume of sales, stable sales prices and rapidly rising inventory costs
5. Adoption of just-in-time inventory purchasing processes that have failed to capture expected efficiencies

______4. Use the financial information of Matt Corporation for the year ended December 31, Year 2:

Cost of goods sold	798,500
Selling and admin expenses	88,000
Net sales	1,235,000
Interest expense	$19,000
Income tax	15,000

The gross profit and gross profit margin for year 2 are

a. $436,500; 35.3%

b. $348,500; 28.2%

c. $436,500; 64.7%

d. $314,500; 25.5%

_____5. Return on common equity measures profitability per dollar of investment for:

1. All providers of capital
2. Common shareholders
3. Creditors
4. All shareholders
5. Preferred shareholders

Answer 1

Answer 1 : e. Ability of the firm to generate sales through the effective and efficient use of assets.

Answer 2 : False

Correct - The total asset turnover component of the DuPont method measures the ability of management to generate sales through efficient use of assets.

Answer 3 : b. Increasing sales prices and stable inventory costs.

Reason : Increse in sales prices and stability of inventory costs will increse the gross profit margin from prior year.

Answer 4 : a. $436,500; 35.3%.

Explanation : Gross profit = $1,235,000 - $798,500 = $436,500 ; Gross profit margin = $436,500 / $1,235,000 = 35.3%

Answer 5 . b. Common shareholders