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 goodssold 400,000
grossprofit 475,000
administrative expenses 282,500
income from operations 192,500
The manager of the European Division is considering ways toincrease the rate of returns on investment.
A. Using the Dupont formula for rate of return on investment, determine the profit margin, investment turnover, and rate ofreturn on investment of the European Division, assuming that1,750,000 of assets have been invested in the europeanDivision.
B. If Expenses could be reduced by 52,500 without descreasing sales, what would be the impact on the profit margin, investmentturnover, and rate of return on investment for the European Division