The condensed income statement for the New England Division of Eastern Gas Co. is as follows (assuming no service department charges):
Sales .............. $700,000
Cost of goods sold ........ 320,000
Gross profit ........... $380,000
Administrative expenses ...... 222,500
Income from operations ....... $157,500
The manager of the New England Division is considering ways to increase the rate of return on investment.
a. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment of the New England Division, assuming that $1,250,000 of assets have been invested in the New England Division.
b. If expenses could be reduced by $39,375 without decreasing sales, what would be the impact on the profit margin, investment turnover, and rate of return on investment for the New England Division?