The condensed income statement for the European Division of Cougar Motors Inc. is as follows (assuming no service department charges):
|
Sales |
$875,000 |
|
Cost of goods sold |
400,000 |
|
Gross profit |
$475,000 |
|
Administrative expenses |
282,500 |
|
Income from operations |
$192,500 |
The manager of the European 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 European Division, assuming that $1,750,000 of assets have been invested in the European Division.
b. If expenses could be reduced by $52,500 without decreasing sales, what would be the impact on the profit margin, investment turnover, and rate of return on investment for the European Division?