Question

Required information [The following information applies to the questions displayed below.) Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center). Investment Center Electronics Sporting goods Sales Income $ 42,960,000 $3,222,000 18,904,000 2,363,000 Average Invested Assets $17,900,000 13,900,000 Compute profit margin and investment turnover for each department. Which department generates the most net income per dollar of sales? Which department is most efficient at generating sales from average invested assets? Complete this question by entering your answers in the tabs below. Profit Margin Investment Turnover Compute profit margin for each department. Which department generates the most net income per dollar of sales? = Profit Margin Profit Margin Profit Margin Choose Numerator: 7 Choose Denominator: Investment Center Electronics Sporting Goods Which department generates the most net income per dollar of sales? < Profit Margin Investment Turnover >

Answer 1

Answer of Part a:

For Electronics:

Profit Margin = Income / Sales *100
Profit Margin = $3,222,000 / $42,960,000 *100
Profit Margin = 7.5%

For Sporting Goods:

Profit Margin = Income / Sales *100
Profit Margin = $2,363,000 / $18,904,000 * 100
Profit Margin = 12.5%

Sporting Goods department generates the most net income per dollar of sales as compared to Electronics goods. Sporting goods profit margin is higher than Electronics goods profit margin.

Answer of Part b:

For Electronics:

Investment Turnover = Sales / Average Invested Assets
Investment Turnover = $42,960,000 / $17,900,000
Investment Turnover = 2.4 times

For Sporting Goods:

Investment Turnover = Sales / Average Invested Assets
Investment Turnover = $18,904,000 / $13,900,000
Investment Turnover = 1.36 times

Electronic goods is most efficient in driving sale per dollar of investment as compared to sporting goods. Electronics goods have higher investment turnover ratio as compared to sporting goods.