Megamart, a retailer of consumer goods, provides the following information on tw

Question

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

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?

Complete this question by entering your answers in the tabs below.

Profit Margin

Compute profit margin for each department. Which department generates the most net income per dollar of sales?

Compute investment turnover for each department. Which department is most efficient at generating sales from average invested assets?

Investment Center Sales Income Average
Invested Assets Electronics $ 34,200,000 $ 2,907,000 $ 17,100,000 Sporting goods 16,768,000 2,096,000 13,100,000

Explanation / Answer

Profit Margin :-

Electronics = Income / Sales

= $2907000 / $34200000

= 0.085 or 8.5%

Sporting Goods = Income / Sales

= $2096000 / $16768000

= 0.125 or 12.5%

Investment Turnover :-

Electronics = Sales / Avg Investment

= $34200000 / $17100000

= 2

Sporting Goods = Sales / Avg Investment

= $16768000 / $13100000

= $1.28

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