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Profit Margin, Investment Turnover, and return on investment The condensed income statement for the Consumer Products...

Profit Margin, Investment Turnover, and return on investment

The condensed income statement for the Consumer Products Division of Fargo Industries Inc. is as follows (assuming no service department charges):

Sales $1,992,000
Cost of goods sold 896,400
Gross profit $1,095,600
Administrative expenses 498,000
Income from operations $597,600

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 $3,320,000 of assets have been invested in the Consumer Products Division. Round the investment turnover to one decimal place.

Profit margin %
Investment turnover
Rate of return on investment %

b. If expenses could be reduced by $99,600 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
Rate of return on investment %
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Answer #1

a) Calculate following

Profit margin (597600/1992000) 30%
Investment turnover (1992000/3320000) 0.60
Rate of return on investment (30*.60) 18%

b) Calculate following

Profit margin (697200/1992000) 35%
Investment turnover (1992000/3320000) 0.60
Rate of return on investment (35*.60) 21%
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