FINANCIAL ACCOUNTING
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Author: Libby
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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 | $1,160,000 |
| Cost of goods sold | (522,000) |
| Gross profit | $638,000 |
| Administrative expenses | (290,000) |
| Operating income | $348,000 |
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 $2,900,000 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 |
| Return on investment | fill in the blank 3 % |
b. If expenses could be reduced by $58,000 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 |
| Return on investment | fill in the blank 6 % |
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