The Western Division of Bestboot Company has a rate of return on investment of 15% and an investment turnover of 1.2. What is the profit margin?
A) 10%
B) 12.5%
C) 9%
D) 6%

Question

Quizplus · Accepted Answer

Profit Margin = Rate of Return on Investment x Investment Turnover
Profit Margin = 15% x 1.2
Profit Margin = 18%

Therefore, the profit margin for the Western Division is 18%, which is not one of the answer choices given. However, we can calculate the cost of goods sold (COGS) as:

COGS = Sales / Investment Turnover
COGS = 1 / 1.2
COGS = 0.83333

So, the profit margin can also be calculated as:

Profit Margin = 1 - COGS / Sales
Profit Margin = 1 - 0.83333
Profit Margin = 0.1667 or 16.67%

The closest answer choice to this calculation is (B) 12.5%, which is not exact but the best choice given.

The Western Division of Bestboot Company Has a Rate of Return