University Hero is considering expanding operations beyond its healthy sandwiches. Jim Axelrod, vice president of marketing, would

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University Hero is considering expanding operations beyond its healthy sandwiches. Jim Axelrod, vice president of marketing, would like to add a line of smoothies with a similar health emphasis. Each smoothie would include two free health supplements such as vitamins, antioxidants, and protein. Jim believes smoothie sales should help fill the slow mid-afternoon period. Adding the line of smoothies would require purchasing additional freezer space, machinery, and equipment. Jim provides the following projections of net sales, net income, and average total assets in support of his proposal.
................................................Sandwiches Only.......Sandwiches and Smoothies
Net sales ...............................................$800,000........................$1,400,000
Net income .............................................100,000............................160,000
Average total assets................................... 400,000........................... 800,000
Required:
1. Calculate University Hero's return on assets, profit margin, and asset turnover for sandwiches only.
2. Calculate University Hero's return on assets, profit margin, and asset turnover for sandwiches and smoothies.
3. Based on these ratios, what recommendation would you make?
Asset Turnover
Asset turnover is sales divided by total assets. Important for comparison over time and to other companies of the same industry. This is a standard business ratio.
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Financial Accounting

ISBN: 9780078110825

2nd Edition

Authors: J. David Spiceland, Wayne Thomas, Don Herrmann

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