Question

Fill in the blanks in the schedule below for two separate investment centers A and B. Round answers to the nearest whole percent.

	Investment center
	A	B
Sales	\(	\)10,400,000
Net income	\(352,000	\)832,000
Average invested assets	\(1,400,000	\)6,933,334
Profit margin	8%	8%
Investment turnover	3.14	1.5
Return on investment	25.14%	12%

Short answer

	Investment center
	A	B
Sales	$4,400,000	$10,400,000
Net income	$352,000	$832,000
Average invested assets	$1,400,000	$6,933,334
Profit margin	8%	8%
Investment turnover	3.14	1.5
Return on investment	25.14%	12%

Step-by-step solution

Definition of Profit Margin Ratio

The ratio reflecting the percentage of revenue converted into profit is known as profit margin. It is determined using the income and the revenue of the business entity.

Calculation of profit margin for investment center B

$$\begin{gathered} \text{Profitmargin=}\frac{\text{Returnoninvestment}}{\text{Investmentturnover}} \\ =\frac{12\%}{1.5} \\ =8\% \end{gathered}$$

Return on investment for investment center A

$$\begin{gathered} \text{Returnoninvestment=}\frac{\text{Netincome}}{\text{Averageinvestedassets}}\times 100 \\ =\frac{\$352,000}{\$1,400,000}\times 100 \\ =25.14\% \end{gathered}$$

Investment turnover for investment center A

$$\begin{gathered} \text{Investmentturnover}=\frac{\text{Returnoninvestment}}{\text{Profitmargin}} \\ \text{=}\frac{25.14\%}{8\%} \\ \text{=3.14} \end{gathered}$$

Calculation of sales for investment center A

$$\begin{gathered} Sales=\frac{Netincome}{Profitmargin} \\ =\frac{\$352,000}{8\%} \\ =\$4,400,000 \end{gathered}$$

Net income for investment center B

Net income = Sales$\times$Profit margin

=$10,40,000$\times$8%

=$832,000

Net income for investment center B

$$\begin{gathered} \text{Averageinvestedassets}=\frac{\text{Netincome}}{\text{Returnoninvestment}} \\ =\frac{\$832,000}{0.12} \\ =\$6,933,334 \end{gathered}$$