**Divisional Performance Analysis and Evaluation (OBJ. 4)**The vice president of operations of Pavone Company 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:| | **Business Division** | **Consumer Division** ||------------------|-----------------------|-----------------------|| **Sales** | $2,500,000 | $2,550,000 || **Cost of goods sold** | 1,320,000 | 1,350,000 || **Operating expenses** | 930,000 | 843,000 || **Invested assets** | 1,250,000 | 2,125,000 |**Instructions:**1. Prepare condensed divisional income statements for the year ended December 31, 2016, assuming that there were no service department charges.2. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment for each division.3. If management desires a minimum acceptable rate of return of 17%, determine the residual income for each division. **Question 1****PAVONE COMPANY***Divisional Income Statements**For the Year Ended December 31, 2021*| | Business Division | Consumer Division ||--------------------------|-------------------|-------------------|| Sales | | || Cost of goods sold | | || Gross profit | | || Operating expenses | | || Income from operations | | |**Question 2**- Business Division ROI: - Consumer Division ROI:**Question 3**- Business Division Residual Income: - Consumer Division Residual Income:

The income statement is prepared to find the net income or loss incurred during the period. Part 1 PAVONE COMPANY Divisional Income Statement For the Year Ended December 31, 2021 Business Division Consumer Division Sales $2,500,000 $2,550,000 Cost of goods sold (1,320,000) (1,350,000) Gross profit 1,180,000 1,200,000 Operating expenses (930,000) (843,000) Income from operations 250,000 357,000 Part 2. Business Division Consumer Division Profit margin (Income from operations / sales) 250,000 / 2,500,000 = 10% 357,000 / 2,550,000 = 14% Investment turnover (Sales / invested assets) 2,500,000 / 1,250,000 = 2 times 2,550,000 / 2,125,000 = 1.2 times Return on investments (Profit margin * investment turnover) 10% * 2 = 20% 14% * 1.2 = 16.8% Part 3. Residual income = Income from operations - invested assets * minimum acceptable rate of return Business Division Consumer Division Income from operations $250,000 $357,000 Invested assets 1,250,000 2,125,000 Minimum acceptable rate of return 17% 17% Residual income 250,000 - (1,250,000 * 17%) = $37,500 357,000 - (2,125,000 * 17%) = - $4,250

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he vice president of operations of Pavone Company is evaluating the performance of wo divisions organized as investment centers. Invested assets and condensed income tatement data for the past year for each division are as follows: Business Division Consumer Division Sales $2,500,000 $2,550,000 Cost of goods sold Operating expenses Invested assets 1,320,000 1,350,000 930,000 843,000 1,250,000 2,125,000 nstructions . Prepare condensed divisional income statements for the year ended December 31, 2016, assuming that there were no service department charges. . Using the DuPont formula for rate of return on investment, determine the profit mar- gin, investment turnover, and rate of return on investment for each division. If management desires a minimum acceptable rate of return of 17%, determine the residual income for each division.

he vice president of operations of Pavone Company is evaluating the performance of wo divisions organized as investment centers. Invested assets and condensed income tatement data for the past year for each division are as follows: Business Division Consumer Division Sales $2,500,000 $2,550,000 Cost of goods sold Operating expenses Invested assets 1,320,000 1,350,000 930,000 843,000 1,250,000 2,125,000 nstructions . Prepare condensed divisional income statements for the year ended December 31, 2016, assuming that there were no service department charges. . Using the DuPont formula for rate of return on investment, determine the profit mar- gin, investment turnover, and rate of return on investment for each division. If management desires a minimum acceptable rate of return of 17%, determine the residual income for each division.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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