Accounting 26th Edition by Carl Warren ,Jim Reeve ,Jonathan Duchac

Exercise 3

Profit margin, investment turnover, and rate of return on investment
The condensed income statement for the Consumer Products Division of Bantastic Industries Inc. is as follows (assuming no service department charges):

The manager of the Consumer Products 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 Consumer Products Division, assuming that $8,000,000 of assets have been invested in the Consumer Products Division.
b. If expenses could be reduced by $320,000 without decreasing sales, what would be the impact on the profit margin, investment turnover, and rate of return on investment for the Consumer Products Division