The Chewy Chocolate Division of the Delight Confection Company Had

question 108

Essay

The Chewy Chocolate Division of the Delight Confection Company had a rate of return on investment (ROI)of 12 percent (= $1,200,000/$10,000,000)during Year 5,based on sales of $20,000,000.In an effort to improve its performance during Year 6,the company instituted several cost-saving programs,including the substitution of automatic equipment for work previously done by workers and the purchase of raw materials in large quantities to obtain quantity discounts.Despite these cost-saving programs,the company's ROI for Year 6 was 10 percent (= $1,100,000/$11,000,000),based on sales of $20,000,000.
Required:
a.Break down the ROI for Year 5 and Year 6 into profit margin and investment turnover ratios.
b.Explain the reason for the decrease in ROI between the two years using the results from part a.

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Definitions:

Bathroom Floor

The surface or part of a bathroom upon which one stands, often made of tile, linoleum, or other water-resistant material.

Leak

The accidental escape of a fluid or gas through a hole or crack, or the disclosure of confidential information.

Plumbing

The system of pipes, drains, fittings, valves, and fixtures installed for the distribution of water for drinking, heating, and washing, and the removal of waterborne wastes.

Piano

A musical instrument with keys that, when pressed, operate hammers that strike wires to produce sound.