Question: Supply Management Use this table for problems 5, 6, and 7. Earnings and Expenses (Year ending January 2012) Sales $50,000,000 Cost of Goods Sold (COGS)
Supply Management
Use this table for problems 5, 6, and 7.
| Earnings and Expenses (Year ending January 2012) | |
| Sales | $50,000,000 |
| Cost of Goods Sold (COGS) | $30,000,000 |
| Pretax Earnings | $ 5,000,000 |
| Selected Balance Sheet Items | |
| Merchandise Inventory | $2,500,000 |
| Total Assets | $8,000,000 |
5. What is the current profit margin? What is the current ROA?
6. Suppose COGS and merchandise inventory were each cut by 10%. What would be the new pretax profit margin and ROA?
7. Based on the current profit margin, how much in additional sales would be needed to have the same effect on pretax earnings as a 10% decrease in COGS?
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