The Chewy Chocolate Division of the Delight Confection Company Had

Essay

The Chewy Chocolate Division of the Delight Confection Company had a rate of return on investment (ROI)of 12 percent (= $1,200,000/$10,000,000)during Year 5,based on sales of $20,000,000.In an effort to improve its performance during Year 6,the company instituted several cost-saving programs,including the substitution of automatic equipment for work previously done by workers and the purchase of raw materials in large quantities to obtain quantity discounts.Despite these cost-saving programs,the company's ROI for Year 6 was 10 percent (= $1,100,000/$11,000,000),based on sales of $20,000,000.
Required:
a.Break down the ROI for Year 5 and Year 6 into profit margin and investment turnover ratios.
b.Explain the reason for the decrease in ROI between the two years using the results from part a.