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 23,000,000 31,000,000 Operating expenses 11,200,000 14,500,000 Invested assets 35,250,000 67,000,000 Prepare condensed divisional income statements for the year ended December 31, 2020, assuming that there were no service department charges. 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.) If management desires a minimum acceptable return on investment of 10%, determine the residual income for each division. Discuss the evaluation of the two divisions compared to each other, using the performance measures determined in parts (a), (b), and (c).
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 23,000,000 31,000,000 Operating expenses 11,200,000 14,500,000 Invested assets 35,250,000 67,000,000 Prepare condensed divisional income statements for the year ended December 31, 2020, assuming that there were no service department charges. 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.) If management desires a minimum acceptable return on investment of 10%, determine the residual income for each division. Discuss the evaluation of the two divisions compared to each other, using the performance measures determined in parts (a), (b), and (c).
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter10: Evaluating Decentralized Operations
Section: Chapter Questions
Problem 5PA: Divisional performance analysis and evaluation The vice president of operations of Recycling...
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- 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 |
23,000,000 |
31,000,000 |
|
Operating expenses |
11,200,000 |
14,500,000 |
|
Invested assets |
35,250,000 |
67,000,000 |
- Prepare condensed divisional income statements for the year ended December 31, 2020, assuming that there were no service department charges.
- 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.) - If management desires a minimum acceptable return on investment of 10%, determine the residual income for each division.
- 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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