Profit Margin, Investment Turnover, and Rate of Return on Investment
The condensed income statement for the International Division of King Industries Inc. is as follows (assuming no service department charges):
| Sales |
$1,632,000 |
| Cost of goods sold |
734,400 |
| Gross profit |
$897,600 |
| Administrative expenses |
489,600 |
| Income from operations |
$408,000 |
The manager of the International Division is considering ways to increase the rate of return on investment.
a. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment of the International Division, assuming that $2,720,000 of assets have been invested in the International Division. Round the investment turnover to one decimal place.
b. If expenses could be reduced by $81,600 without decreasing sales, what would be the impact on the profit margin, investment turnover, and rate of return on investment for the International Division? Round the investment turnover to one decimal place.