Tommy profit margin and return on assets

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Reference no: EM131929117

Tony's Terrible Towel is a small manufacturer located in the mid-west. Selected data are provided in the table below:

EARNINGS & EXPENSES

Sales ------------------------------ $4,250,000

Merchandise Costs ----------- $ 3,208,750

Net Income --------------------- $ 184,918

SELECTED BALANCE SHEET ITEMS

Merchandise Inventory $ 2,567,000

Total Assets $ 3,400,000

What effect would a 5% reduction in merchandise costs have on Tommy's profit margin and return on assets? Further, by how much would sales have to increase to achieve the same improvement in net income as created by the 5% reduction in merchandise costs?

Reference no: EM131929117

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