Bonner Corporation’s balance sheet indicates that the company has $320,000 inves
ID: 2530914 • Letter: B
Question
Bonner Corporation’s balance sheet indicates that the company has $320,000 invested in operating assets. During 2018, Bonner earned $24,000 of operating income on $480,000 of sales. Required a. Compute Bonner’s operating profit margin percentage for 2018. b. Compute Bonner’s turnover for 2018. c. Compute Bonner’s return on investment for 2018. d. Recompute Bonner’s ROI under each of the following independent assumptions: (1) Sales increase from $480,000 to $560,000, thereby resulting in an increase in operating income from $24,000 to $28,000. (2) Sales remain constant, but Bonner reduces expenses, thereby resulting in an increase in income from $24,000 to $25,920. (3) Bonner is able to reduce its operating assets from $320,000 to $300,000 without affecting income.
Explanation / Answer
a) Operating Profit Margin Percentage = Operating income/Sales x 100
= $24,000/$480,000 x 100 = 5%
b) Turnover for a company is basically its revenue or total sales . Therefore, Bonner's turnover is its sales of $480,000.
but another turnover ratio is investment turnover ratio
Investment turnover ratio = Sales/ operating assets
=$480,000/$320,000 = 1.5 times
c) ROI = Operating income/Operating assets x 100
= $24,000/$320,000 x 100 = 7.5%
d)1) ROI if sales increase = $28,000/$320,000 x 100 = 8.75%
d)2) ROI if profit increase to $25,920 = $25,920/$320,000 x 100 = 8.1%
d)3) ROI if operating assets decrease to $300,000 = $24,000/$300,000 x 100 = 8%