Chapter 22, Problem 21E

1.

To determine

To compute: Profit margin.

Explanation of Solution

Formula to calculate profit margin,

$\text{Profit}\text{Margin}=\frac{\text{Net}\text{Income}}{\text{Total}\text{Revenue}}\times 100$ ..................(1)

Professional products:

Given,
Net income is €552.
Total revenue is €2,717.

Substitute, €552 for net income and €2,717 for total revenue in the above equation (1).

$\begin{array}{c}\text{Profit}\text{margin}=\frac{€552}{€2,717}\times 100\\ =20.31\%\end{array}$

Hence, profit margin is 20.31%.

Consumer products:

Given,
Net income is €1,765.
Total revenue is €9.530.

Substitute, €1,765 for net income and €9,530 for total revenue in the above equation (1).

$\begin{array}{c}\text{Profit}\text{margin}=\frac{€1,765}{€9,530}\times 100\\ =18.52\%\end{array}$

Hence, profit margin is 18.52%.

Luxury products:

Given,
Net income is €791.
Total revenue is €4,507.

Substitute, €791 for net income and €4,507 for total revenue in the above equation (1).

$\begin{array}{c}\text{Profit}\text{margin}=\frac{€791}{€4,507}\times 100\\ 17.55\%\end{array}$

Hence, profit margin is 17.55%.

Active cosmetics:

Given,
Net income is €278.
Total revenue is €1,386.

Substitute, €278 for net income and €1,386 for total revenue in the above equation (1).

$\begin{array}{c}\text{Profit}\text{margin}=\frac{€278}{€1,386}\times 100\\ =20.05\%\end{array}$

Hence, profit margin is 20.05%.

Hence, professional products division has the highest profit margin of 20.31%.

2.

To determine

To compute: Investment turnover.

Explanation of Solution

Formula to calculate investment turnover,

$\text{Investment}\text{turnover}=\frac{\text{Sales}}{\text{Average}\text{invested}\text{assets}}$ ..............(2)

Professional products:

Given,
Sales are €2,717.
Average assets invested are €2,570.

Substitute, €2,717 for sales and €2,570 for average assets invested in the above equation (2).

$\begin{array}{c}\text{Investment}\text{turnover}=\frac{€2,717}{€2,570}\\ =1.05\end{array}$

Hence, investment turnover is 1.05.

Working notes:

Calculation for average assets,

$\begin{array}{c}\text{Average assets}=\frac{\text{Beginning asset balance}+\text{Ending asset balance}}{2}\\ =\frac{€2,516+€2,624}{2}\\ =€2,570\end{array}$

Consumer products:

Given,
Sales are €9,530.
Average assets invested are €5,745.

Substitute, €9,530 for sales and €5,745 for average assets invested in the above equation (2).

$\begin{array}{c}\text{Investment}\text{turnover}=\frac{€9,530}{€5,745}\\ =1.65\end{array}$

Hence, investment turnover is 1.65.

Working notes:

Calculation for average assets,

$\begin{array}{c}\text{Average assets}=\frac{\text{Beginning asset balance}+\text{Ending asset balance}}{2}\\ =\frac{€5,496+€5,994}{2}\\ =€5,745\end{array}$

Luxury products:

Given,
Sales are €4,507.
Average assets invested are €3,855.

Substitute, €4,507 for sales and €3,855 for average assets invested in the above equation (2).

$\begin{array}{c}\text{Investment}\text{turnover}=\frac{€4,507}{€3,855}\\ =1.17\end{array}$

Hence, investment turnover is 1.17.

Working notes:

Calculation for average assets,

$\begin{array}{c}\text{Average assets}=\frac{\text{Beginning asset balance}+\text{Ending asset balance}}{2}\\ =\frac{€4,059+€3,651}{2}\\ =€3,855\end{array}$

Active cosmetics:

Given,
Sales are €1,386.
Average assets invested are €823.5.

Substitute, €1,386 for sales and €823.5 for average assets invested in the above equation (2).

$\begin{array}{c}\text{Investment}\text{turnover}=\frac{€1,386}{€823.5}\\ =1.68\end{array}$

Hence, investment turnover is 1.68.

Working notes:

Calculation for average assets,

$\begin{array}{c}\text{Average assets}=\frac{\text{Beginning asset balance}+\text{Ending asset balance}}{2}\\ =\frac{€817+€830}{2}\\ =€823.5\end{array}$