QUESTION -123 The condensed income statement for the Consumer Products Division of Milner Industries Inc. is as follows: Sales = $7,000,000 Cost of goods sold = $4,500,000 Gross profit = $2,500,000 Administrative expenses = $750,000 Income from operations = $1,750,000 The manager of the Consumer Products Division is considering ways to increase the rate of return on investments 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 $5,000,000 of assets have been invested in the Consumer Products Division. b) If expenses could be reduced by $350,000 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? The following accounts and balances are taken from year end financial statements. SALES COST OF SALES GROSS MARGIN 2007 2006 $507,924,000 $392,190,000 330,466,000 249,667,000 177,458,000 142,523,000 OPERATING EXPENSES 91,444,000 75,646,000 NET OPERATING INCOME 86,014,000 66,877,000 INTERESTING EXPENSE 3,293,000 3,523,000 NET INCOME BEFORE TAXES 82,721,000 63,354,000 INCOME TAXES 27,530,000 20,900,000 NET INCOME 55,191,000 42,454,000 $631,302,000 $534,815,000 TOTAL ASSETS TOTAL CURRENT ASSETS $217,808,000 $180,021,000 Use the information to calculate return on assets for 2007.
QUESTION -123 The condensed income statement for the Consumer Products Division of Milner Industries Inc. is as follows: Sales = $7,000,000 Cost of goods sold = $4,500,000 Gross profit = $2,500,000 Administrative expenses = $750,000 Income from operations = $1,750,000 The manager of the Consumer Products Division is considering ways to increase the rate of return on investments 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 $5,000,000 of assets have been invested in the Consumer Products Division. b) If expenses could be reduced by $350,000 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? The following accounts and balances are taken from year end financial statements. SALES COST OF SALES GROSS MARGIN 2007 2006 $507,924,000 $392,190,000 330,466,000 249,667,000 177,458,000 142,523,000 OPERATING EXPENSES 91,444,000 75,646,000 NET OPERATING INCOME 86,014,000 66,877,000 INTERESTING EXPENSE 3,293,000 3,523,000 NET INCOME BEFORE TAXES 82,721,000 63,354,000 INCOME TAXES 27,530,000 20,900,000 NET INCOME 55,191,000 42,454,000 $631,302,000 $534,815,000 TOTAL ASSETS TOTAL CURRENT ASSETS $217,808,000 $180,021,000 Use the information to calculate return on assets for 2007.
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:QUESTION -123
The condensed income statement for the Consumer Products Division of Milner Industries
Inc. is as follows:
Sales = $7,000,000
Cost of goods sold = $4,500,000
Gross profit = $2,500,000
Administrative expenses = $750,000
Income from operations = $1,750,000
The manager of the Consumer Products Division is considering ways to increase the rate of
return on investments
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 $5,000,000 of assets have been invested in the Consumer Products Division.
b) If expenses could be reduced by $350,000 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?
The following accounts and balances are taken from year end financial statements.
SALES
COST OF SALES
GROSS MARGIN
2007
2006
$507,924,000 $392,190,000
330,466,000
249,667,000
177,458,000
142,523,000
OPERATING EXPENSES
91,444,000 75,646,000
NET OPERATING INCOME
86,014,000 66,877,000
INTERESTING EXPENSE
3,293,000
3,523,000
NET INCOME BEFORE TAXES
82,721,000
63,354,000
INCOME TAXES
27,530,000
20,900,000
NET INCOME
55,191,000 42,454,000
$631,302,000 $534,815,000
TOTAL ASSETS
TOTAL CURRENT ASSETS
$217,808,000 $180,021,000
Use the information to calculate return on assets for 2007.
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