Question

In: Accounting

Required information [The following information applies to the questions displayed below.] Megamart, a retailer of consumer...

Required information

[The following information applies to the questions displayed below.]

Megamart, a retailer of consumer goods, provides the following information on two of its departments (each considered an investment center).

Investment Center Sales Income Average
Invested Assets
Electronics $ 40,000,000 $ 2,880,000 $ 16,000,000
Sporting goods 20,000,000 2,040,000 12,000,000

Compute profit margin and investment turnover for each department. Which department generates the most net income per dollar of sales? Which department is most efficient at generating sales from average invested assets?

Solutions

Expert Solution

  • All working forms part of the answer
  • Profit Margin

Working

Electronics

Sporting Goods

A

Income

$                       2,880,000.00

$         2,040,000.00

B

Sales

$                     40,000,000.00

$       20,000,000.00

C = (A/B) x 100

Profit Margin

7.20%

10.20%

  • Investment Turnover

Working

Electronics

Sporting Goods

A

Sales

$                     40,000,000.00

$       20,000,000.00

B

Average Invested Assets

$                     16,000,000.00

$      12,000,000.00

C = (A/B) x 100

Investment Turnover

2.5 times

1.67 times

  • “Sporting Goods” generates most Net Income per dollar of Sales (which is $ 10.20 per $ 100 sale).
  • “Electronics” is more efficient in generating sales from Average Asset Invested.

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