
(1)
Profit margin: This ratio gauges the operating profitability by quantifying the amount of income earned from business operations from the sales generated.
Formula of profit margin:
Investment turnover: This ratio gauges the operating efficiency by quantifying the amount of sales generated from the assets invested.
Formula of investment turnover:
Formula of ROI according to Dupont formula:
To determine: Profit margin, investment turnover, and return on investment of E Division
(1)

Explanation of Solution
Determine ROI of E Division, if income from operations is $126,000, sales are $1,575,000, and assets invested are $1,050,000.
(2)
Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
To prepare: The income statements for E Division of Industries G for the year ended December 31, 2016, for each of the three proposals, and compute invested assets for each proposal
(2)

Explanation of Solution
Prepare divisional income statements for E Division of Industries G for the year ended December 31, 2016, for the three proposals.
Industries G | |||
Divisional Income Statements | |||
For the Year Ended December 31, 2016 | |||
Proposal 1 | Proposal 2 | Proposal 3 | |
Sales | $1,575,000 | $1,395,000 | $1,575,000 |
Cost of goods sold | 859,600 | 771,450 | 702,000 |
Gross profit | 715,400 | 623,550 | 873,000 |
Operating expenses | 558,000 | 498,000 | 558,000 |
Income from operations | $157,400 | $125,550 | $315,000 |
Table (1)
Working Notes:
Compute cost of goods sold under proposal 1.
Compute sales under proposal 2.
Compute cost of goods sold under proposal 2.
Compute operating expenses under proposal 2.
Compute cost of goods sold under proposal 3.
(3)
Profit margin, investment turnover, and return on investment of E Division under the three proposals
(3)

Explanation of Solution
Determine ROI of E Division, under proposal 1, if income from operations is $157,400, sales are $1,575,000, and assets invested are $750,000.
Note: Refer to part (1) for the values of income from operations and invested assets.
Determine ROI of E Division, under proposal 2, if income from operations is $125,550, sales are $1,395,000, and assets invested are $937,500.
Note: Refer to part (1) for the values of income from operations, sales, and invested assets.
Determine ROI of E Division, under proposal 3, if income from operations is $315,000, sales are $1,575,000, and assets invested are $1,968,750.
Note: Refer to part (1) for the values of income from operations and invested assets.
(4)
To indicate: The proposal which meets the desired ROI of 20%
(4)

Explanation of Solution
(5)
The increase in investment turnover to meet the desired return of 20%.
(5)

Explanation of Solution
Determine increase in investment turnover of E Division, if income from operations is $126,000 and sales are $1,575,000.
Step 1: Find the required investment turnover to earn desired ROI of 20%.
Step 2: Find the increase in investment turnover, if required investment turnover is 2.5 (From Step 1), and current investment turnover is 1.50 (From Part (1)).
Want to see more full solutions like this?
Chapter 23 Solutions
Bundle: Financial & Managerial Accounting, Loose-leaf Version, 13th + CengageNOWv2, 1 term (6 months) Printed Access Card Corporate Financial ... Access Card for Managerial Accounting, 13th
- The following is information concerning a product manufactured by Harper Industries: • Sales price per unit = $80 • Variable cost per unit = $50 Total fixed manufacturing and operating costs (per month) = $500,000 a. The unit contribution margin b. The number of units that must be sold each month to break even c. The number of units that must be sold to earn an operating income of $300,000 per montharrow_forwardQuestionarrow_forwardgeneral accountingarrow_forward
- Lakemearrow_forwardWhich amount?arrow_forwardA company bought a new cooling system for $150,000 and was given a trade-in of $95,000 on an old cooling system, so the company paid $55,000 cash with the trade-in. The old system had an original cost of $140,000 and accumulated depreciation of $60,000. If the transaction has commercial substance, the company should record the new cooling system at _.arrow_forward
- calculate Bethlehem's asset turnover ratio.arrow_forwardQuestion: Variance (accounting) - Wisley Corporation makes a product whose direct labor standards are 0.8 hours per unit and $28 per hour. In April the company produced 7,350 units using 5,380 direct labor hours. The actual direct labor cost was $112,980. The labor efficiency variance for April is ___.arrow_forwardWhat is the value of retained earnings on julyarrow_forward
- what is the contribution margin per unitarrow_forwardLakeme Inc reported net income of 50000 for the year ended dec 22arrow_forwardChawla Enterprises' fixed monthly expenses are $29,500, and its contribution margin ratio is 60%. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $98,000? Don't use AIarrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning


