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	$1,536,000
Cost of goods sold	691,200
Gross profit	$844,800
Administrative expenses	307,200
Income from operations	$537,600

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 $2,560,000 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 $76,800 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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a. Income from operations divided by sales equals profit margin. Sales divided by invested assets equals investment turnover. Multiply these two percentages for the rate of return.

b. Reducing expenses would increase the income from operations. Recalculate the percentages.

Learning Objective 4.

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