2. The vice president of operations of Recycling Industries is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows: Category Business Division Consumer Division Sales $42,750,000 $55,000,000 Cost of goods sold Operating expenses 23,000,000 31,000,000 11,200,000 14,500,000 Invested assets 35,250,000 67,000,000 Problem 2 Instructions a. Prepare condensed divisional income statements for the ended December 31, 2020, assuming that year there were no service department charges. b. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each division. (Round percentages to one decimal place and the investment turnover to two decimal places.) c. If management desires a minimum acceptable return on investment of 10%, determine the residual income for each division.
2. The vice president of operations of Recycling Industries is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows: Category Business Division Consumer Division Sales $42,750,000 $55,000,000 Cost of goods sold Operating expenses 23,000,000 31,000,000 11,200,000 14,500,000 Invested assets 35,250,000 67,000,000 Problem 2 Instructions a. Prepare condensed divisional income statements for the ended December 31, 2020, assuming that year there were no service department charges. b. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each division. (Round percentages to one decimal place and the investment turnover to two decimal places.) c. If management desires a minimum acceptable return on investment of 10%, determine the residual income for each division.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:2. The vice president of operations of Recycling Industries is
evaluating the performance of two divisions organized as
investment centers. Invested assets and condensed income
statement data for the past year for each division are as
follows:
Category
Business Division Consumer Division
Sales
$42,750,000
$55,000,000
Cost of goods sold
Operating expenses
23,000,000
31,000,000
11,200,000
14,500,000
Invested assets
35,250,000
67,000,000
Problem 2 Instructions
a. Prepare condensed divisional income statements for
the year ended December 31, 2020, assuming that
there were no service department charges.
b. Using the DuPont formula for return on investment,
determine the profit margin, investment turnover, and
return on investment for each division. (Round
percentages to one decimal place and the investment
turnover to two decimal places.)
c. If management desires a minimum acceptable return
on investment of 10%, determine the residual income
for each division.
d. Discuss the evaluation of the two divisions compared
to each other, using the performance measures
determined in parts (a), (b), and (c).
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d. Discuss the evaluation of the two divisions compared to each other, using the
performance measures determined in parts (a), (b), and (c).
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