The condensed income statement for the International Division of King Industries Inc. is as follows (assuming no service department charges):
Sales .............. $1,200,000
Cost of goods sold ........ 600,000
Gross profit .......... $ 600,000
Administrative expenses ....... 300,000
Income from operations ..... $ 300,000
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 $2,000,000 of assets have been invested in the International Division.
(b) If expenses could be reduced by $60,000 without decreasing sales, what would be the impact on the profit margin, investment turnover, and rate of return on investment for the International Division?