Question

Problem 15-22 Return on investment LO 15-6

Gibson Corporation’s balance sheet indicates that the company has $580,000 invested in operating assets. During 2018, Gibson earned operating income of $67,280 on $1,160,000 of sales.

Required

1. Compute Gibson’s profit margin for 2018.
2. Compute Gibson’s turnover for 2018.
3. Compute Gibson’s return on investment for 2018.
4. Recompute Gibson’s ROI under each of the following independent assumptions:
   (1) Sales increase from $1,160,000 to $1,392,000, thereby resulting in an increase in operating income from $67,280 to $76,560.
   (2) Sales remain constant, but Gibson reduces expenses, resulting in an increase in operating income from $67,280 to $69,600.
   (3) Gibson is able to reduce its invested capital from $580,000 to $464,000 without affecting operating income.
   Complete this question by entering your answers in the tabs below. Req A to C Req D Compute Gibson's profit margin, turnover and return on investment for 2018. (Round "Profit margin" and "Return on investment" to 1 decimal place.) a Profit marg b. Turnover C. Return on investment times Req D Req A to C Complete this question by entering your answers in the tabs below. Req A to C Req D Recompute Gibson's ROI under each of the following independent assumptions: (Do not round intermediate calculations. Round your answers to 2 decimal places. (i.e., .2345 should be entered as 23.45).) (1) Sales increase from $1,160,000 to $1,392,000, thereby resulting in an increase in operating income from $67,280 to $76,560. (2) Sales remain constant, but Gibson reduces expenses, resulting in an increase in operating income from $67,280 to $69,600. (3) Gibson is able to reduce its invested capital from $580,000 to $464,000 without affecting operating income. Show less A Return on Investment % (1) % (2) % (3) Req A to C Req D
   

Answer 1

A).Compute Gibson Profit Margin for the year of 2018 Formula: Profit Margine = Operating Profit/ Sales during the year *100 Particulars Amount A Operating Profit 67280 Sales Income 1160000 (A/B*100=C) Profit Margin 5.8 B).Compute Gibson Turnover for the year of 2018 Turnover = Sales/Investment Particulars Amount Investment 580000 Sales Income 1160000 (C=B/A) Turnover 2.00 C).Compute Gibson Return of Investment for the year of 2018 Return on Investment = Profit Margin / Investment * 100 Particulars Amount Operating Profit Investment Return on Investment 67280 580000 11.60 (C=A/B) D).Compute Gibson Return of Investment for the year of 2018 Return on Investment = Profit / Investment * 100 Scenarion Particulars Profit Investment Return on Investment (E=C/D*100) 76560 580000 13.2 1) 69600 580000 12.00 Sales increse to 13.92 lacs Profit Increse to 0.76 lacs Sales constant 11.60 lacs Profit Increse to 0.69 lacs Investment Decrease 4.64 lacs Profit Constant to 0.67 lacs 67280 464000 14.50

Hence

A) Profit Margin of 5.8%

B) Sales Turnover 2 Times

C) ROI 11.60%

D) Return on Investment

1) 13.20%

2) 12.00%

3) 14.50%