Question

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 $1,674,000 Cost of goods sold Gross profit Administrative expenses (753,300) $920,700 (418,500) Operating income $502,200 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 $2,790,000 of assets have been invested in the Consumer Products Division. Round the investment turnover to one decimal place Profit margin Investment turnover Return on investment b. If expenses could be reduced by $83,700 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 Investment turnover Return on investment

Answer 1

a.
Profit margin	30%	Operating income/Sales
Investment turnover	0.6	Sales/ Asset invested
Return on investment	18%	Operating income/Assets invested
b. Reducing expenses by $83,700, without decreasing sales
Profit margin	35%	Operating income/Sales
Investment turnover	0.6	Sales/ Asset invested
Return on investment	21%	Operating income/Assets invested