eBook Print Item Question Content Area Effect of Proposals on Divisional Performance A condensed income statement for the Electronics Division of Gihbli Industries Inc. for the year ended December 31 is as follows: Sales $2,340,000 Cost of goods sold 1,788,000 Gross profit $ 552,000 Operating expenses 318,000 Income from operations $ 234,000 Invested assets $1,800,000 Assume that the Electronics Division received no cost allocations from service departments. The president of Gihbli Industries Inc. has indicated that the division’s return on a $1,800,000 investment must be increased to at least 15% by the end of the next year if operations are to continue. The division manager is considering the following three proposals: Proposal 1: Transfer equipment with a book value of $360,000 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would be less than the amount of depreciation expense on the old equipment by $64,800. This decrease in expense would be included as part of the cost of goods sold. Sales would remain unchanged. Proposal 2: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $382,500, reduce cost of goods sold by $255,600, and reduce operating expenses by $112,500. Assets of $911,300 would be transferred to other divisions at no gain or loss. Proposal 3: Purchase new and more efficient machinery and thereby reduce the cost of goods sold by $237,600 after considering the effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old machinery, which has no remaining book value, would be scrapped at no gain or loss. The new machinery would increase invested assets by $900,000 for the year. Required: Question Content Area 1. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the Electronics Division for the past year. Round your answers to one decimal place. Electronics Division Profit margin fill in the blank 41786c01003efc3_1% Investment turnover fill in the blank 41786c01003efc3_2 ROI fill in the blank 41786c01003efc3_3% Question Content Area 2. Prepare condensed estimated income statements and compute the invested assets for each proposal. Gihbli Industries Inc.—Electronics DivisionEstimated Income StatementsFor the Year Ended December 31 Proposal 1 Proposal 2 Proposal 3 Sales $fill in the blank 82e999f6404605f_1 $fill in the blank 82e999f6404605f_2 $fill in the blank 82e999f6404605f_3 Cost of goods sold fill in the blank 82e999f6404605f_4 fill in the blank 82e999f6404605f_5 fill in the blank 82e999f6404605f_6 Gross profit $fill in the blank 82e999f6404605f_7 $fill in the blank 82e999f6404605f_8 $fill in the blank 82e999f6404605f_9 Operating expenses fill in the blank 82e999f6404605f_10 fill in the blank 82e999f6404605f_11 fill in the blank 82e999f6404605f_12 Income from operations $fill in the blank 82e999f6404605f_13 $fill in the blank 82e999f6404605f_14 $fill in the blank 82e999f6404605f_15 Invested assets $fill in the blank 82e999f6404605f_16 $fill in the blank 82e999f6404605f_17 $fill in the blank 82e999f6404605f_18 Question Content Area 3. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. Round interim calculations (including previously calculated) and final answer to one decimal place. Proposal Profit Margin Investment Turnover ROI Proposal 1 fill in the blank 15eca5fb701ff91_1% fill in the blank 15eca5fb701ff91_2 fill in the blank 15eca5fb701ff91_3% Proposal 2 fill in the blank 15eca5fb701ff91_4% fill in the blank 15eca5fb701ff91_5 fill in the blank 15eca5fb701ff91_6% Proposal 3 fill in the blank 15eca5fb701ff91_7% fill in the blank 15eca5fb701ff91_8 fill in the blank 15eca5fb701ff91_9% 4. Which of the three proposals would meet the required 15% return on investment. Proposal 1 Proposal 2 Proposal 3 5. If the Electronics Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet the president's required 15% return on investment? Enter your increase in investment turnover answer as a percentage of current investment turnover. Round interim calculations (including previously calculated) and final answer to one decimal place. fill in the blank 15eca5fb701ff91_13%

eBook Print Item Question Content Area Effect of Proposals on Divisional Performance A condensed income statement for the Electronics Division of Gihbli Industries Inc. for the year ended December 31 is as follows: Sales $2,340,000 Cost of goods sold 1,788,000 Gross profit $ 552,000 Operating expenses 318,000 Income from operations $ 234,000 Invested assets $1,800,000 Assume that the Electronics Division received no cost allocations from service departments. The president of Gihbli Industries Inc. has indicated that the division’s return on a $1,800,000 investment must be increased to at least 15% by the end of the next year if operations are to continue. The division manager is considering the following three proposals: Proposal 1: Transfer equipment with a book value of $360,000 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would be less than the amount of depreciation expense on the old equipment by $64,800. This decrease in expense would be included as part of the cost of goods sold. Sales would remain unchanged. Proposal 2: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $382,500, reduce cost of goods sold by $255,600, and reduce operating expenses by $112,500. Assets of $911,300 would be transferred to other divisions at no gain or loss. Proposal 3: Purchase new and more efficient machinery and thereby reduce the cost of goods sold by $237,600 after considering the effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old machinery, which has no remaining book value, would be scrapped at no gain or loss. The new machinery would increase invested assets by $900,000 for the year. Required: Question Content Area 1. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the Electronics Division for the past year. Round your answers to one decimal place. Electronics Division Profit margin fill in the blank 41786c01003efc3_1% Investment turnover fill in the blank 41786c01003efc3_2 ROI fill in the blank 41786c01003efc3_3% Question Content Area 2. Prepare condensed estimated income statements and compute the invested assets for each proposal. Gihbli Industries Inc.—Electronics DivisionEstimated Income StatementsFor the Year Ended December 31 Proposal 1 Proposal 2 Proposal 3 Sales $fill in the blank 82e999f6404605f_1 $fill in the blank 82e999f6404605f_2 $fill in the blank 82e999f6404605f_3 Cost of goods sold fill in the blank 82e999f6404605f_4 fill in the blank 82e999f6404605f_5 fill in the blank 82e999f6404605f_6 Gross profit $fill in the blank 82e999f6404605f_7 $fill in the blank 82e999f6404605f_8 $fill in the blank 82e999f6404605f_9 Operating expenses fill in the blank 82e999f6404605f_10 fill in the blank 82e999f6404605f_11 fill in the blank 82e999f6404605f_12 Income from operations $fill in the blank 82e999f6404605f_13 $fill in the blank 82e999f6404605f_14 $fill in the blank 82e999f6404605f_15 Invested assets $fill in the blank 82e999f6404605f_16 $fill in the blank 82e999f6404605f_17 $fill in the blank 82e999f6404605f_18 Question Content Area 3. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. Round interim calculations (including previously calculated) and final answer to one decimal place. Proposal Profit Margin Investment Turnover ROI Proposal 1 fill in the blank 15eca5fb701ff91_1% fill in the blank 15eca5fb701ff91_2 fill in the blank 15eca5fb701ff91_3% Proposal 2 fill in the blank 15eca5fb701ff91_4% fill in the blank 15eca5fb701ff91_5 fill in the blank 15eca5fb701ff91_6% Proposal 3 fill in the blank 15eca5fb701ff91_7% fill in the blank 15eca5fb701ff91_8 fill in the blank 15eca5fb701ff91_9% 4. Which of the three proposals would meet the required 15% return on investment. Proposal 1 Proposal 2 Proposal 3 5. If the Electronics Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet the president's required 15% return on investment? Enter your increase in investment turnover answer as a percentage of current investment turnover. Round interim calculations (including previously calculated) and final answer to one decimal place. fill in the blank 15eca5fb701ff91_13%

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Question Content Area

Effect of Proposals on Divisional Performance

A condensed income statement for the Electronics Division of Gihbli Industries Inc. for the year ended December 31 is as follows:

Sales	$2,340,000
Cost of goods sold	1,788,000
Gross profit	$ 552,000
Operating expenses	318,000
Income from operations	$ 234,000
Invested assets	$1,800,000

Assume that the Electronics Division received no cost allocations from service departments.

The president of Gihbli Industries Inc. has indicated that the division’s return on a $1,800,000 investment must be increased to at least 15% by the end of the next year if operations are to continue. The division manager is considering the following three proposals:

Proposal 1: Transfer equipment with a book value of $360,000 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would be less than the amount of depreciation expense on the old equipment by $64,800. This decrease in expense would be included as part of the cost of goods sold. Sales would remain unchanged.

Proposal 2: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $382,500, reduce cost of goods sold by $255,600, and reduce operating expenses by $112,500. Assets of $911,300 would be transferred to other divisions at no gain or loss.

Proposal 3: Purchase new and more efficient machinery and thereby reduce the cost of goods sold by $237,600 after considering the effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old machinery, which has no remaining book value, would be scrapped at no gain or loss. The new machinery would increase invested assets by $900,000 for the year.

Required:

Question Content Area

1. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the Electronics Division for the past year. Round your answers to one decimal place.

	Electronics Division
Profit margin	fill in the blank 41786c01003efc3_1%
Investment turnover	fill in the blank 41786c01003efc3_2
ROI	fill in the blank 41786c01003efc3_3%

Question Content Area

2. Prepare condensed estimated income statements and compute the invested assets for each proposal.

Gihbli Industries Inc.—Electronics DivisionEstimated Income StatementsFor the Year Ended December 31

	Proposal 1	Proposal 2	Proposal 3
Sales	$fill in the blank 82e999f6404605f_1	$fill in the blank 82e999f6404605f_2	$fill in the blank 82e999f6404605f_3
Cost of goods sold	fill in the blank 82e999f6404605f_4	fill in the blank 82e999f6404605f_5	fill in the blank 82e999f6404605f_6
Gross profit	$fill in the blank 82e999f6404605f_7	$fill in the blank 82e999f6404605f_8	$fill in the blank 82e999f6404605f_9
Operating expenses	fill in the blank 82e999f6404605f_10	fill in the blank 82e999f6404605f_11	fill in the blank 82e999f6404605f_12
Income from operations	$fill in the blank 82e999f6404605f_13	$fill in the blank 82e999f6404605f_14	$fill in the blank 82e999f6404605f_15
Invested assets	$fill in the blank 82e999f6404605f_16	$fill in the blank 82e999f6404605f_17	$fill in the blank 82e999f6404605f_18

Question Content Area

3. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. Round interim calculations (including previously calculated) and final answer to one decimal place.

Proposal	Profit Margin	Investment Turnover	ROI
Proposal 1	fill in the blank 15eca5fb701ff91_1%	fill in the blank 15eca5fb701ff91_2	fill in the blank 15eca5fb701ff91_3%
Proposal 2	fill in the blank 15eca5fb701ff91_4%	fill in the blank 15eca5fb701ff91_5	fill in the blank 15eca5fb701ff91_6%
Proposal 3	fill in the blank 15eca5fb701ff91_7%	fill in the blank 15eca5fb701ff91_8	fill in the blank 15eca5fb701ff91_9%

4. Which of the three proposals would meet the required 15% return on investment.

Proposal 1
Proposal 2
Proposal 3

5. If the Electronics Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet the president's required 15% return on investment? Enter your increase in investment turnover answer as a percentage of current investment turnover. Round interim calculations (including previously calculated) and final answer to one decimal place.
fill in the blank 15eca5fb701ff91_13%

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.