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CMA Intermediate · Management Accounting · Divisional Performance Measurement

A division has sales of ₹40,00,000, operating profit of ₹4,00,000 and capital employed of ₹20,00,000. Using the DuPont approach, what are its profit margin and capital turnover respectively?

Profit margin is 10 percent and capital turnover is 2 times. Margin is operating profit over sales (4 lakh over 40 lakh) and turnover is sales over capital employed (40 lakh over 20 lakh); their product gives the ROI of 20 percent.

  1. A10% and 2 timesCorrect
  2. B20% and 2 times
  3. C10% and 0.5 times
  4. D5% and 4 times

Explanation

Profit margin = 4,00,000/40,00,000 = 10%. Capital turnover = 40,00,000/20,00,000 = 2 times. Product = 20% = ROI (4,00,000/20,00,000). Option 20% and 2 times uses the ROI as margin, which is wrong.

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