(1)
Prepare the income statements for C, SC, and RB Divisions of Company CG for the year ended June 30, 20Y7
(1)

Explanation of Solution
Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
Profit margin: This ratio gauges the operating profitability by quantifying the amount of income earned from business operations from the sales generated.
Formula of profit margin:
Investment turnover: This ratio gauges the operating efficiency by quantifying the amount of sales generated from the assets invested.
Formula of investment turnover:
Formula of ROI according to DuPont formula:
Prepare divisional income statements for C, SC, and RB Divisions of Company CG for the year ended June 30, 20Y7.
Company CG | |||
Divisional Income Statements | |||
For the Year Ended June 30, 20Y7 | |||
C Division | SC Division | RB Division | |
Sales | $25,000,000 | $8,000,000 | $9,750,000 |
Cost of goods sold | 16,670,000 | 5,575,000 | 6,795,000 |
Gross profit | 8,330,000 | 2,425,000 | 2,955,000 |
Operating expenses | 7,330,000 | 1,945,000 | 2,272,500 |
Income from operations | $1,000,000 | $480,000 | $682,500 |
Table (1)
(2)
Ascertain the Profit margin, investment turnover, and return on investment of C, SC, and RB Divisions
(2)

Explanation of Solution
a)
Determine ROI of C Division, if income from operations is $1,000,000 (From part (1)), sales are $25,000,000, and assets invested are $10,000,000.
b)
Determine ROI of SC Division, if income from operations is $480,000 (From part (1)), sales are $8,000,000, and assets invested are $4,000,000.
c)
Determine ROI of RB Division, if income from operations is $682,500 (From part (1)), sales are $9,750,000, and assets invested are $6,500,000.
(3)
Recommend the expansion of the profitable division, based on income from operations and ROI, computed in parts (1) and (2)
(3)

Explanation of Solution
The division with highest return on investment is considered as the most profitable division. Hence, SC Division is the most profitable division with highest ROI of 12.0%. Although income from operations are less than C Division, the return earned per dollar of assets invested is high for SC Division. So, it is recommended to expand the SC Division, assuming that the ROI would be standard.
Want to see more full solutions like this?
Chapter 10 Solutions
Managerial Accounting
- Boss corporation provides the following data from its 2022 financial statementsarrow_forwardABC general accountingarrow_forwardCarter Company disposed of an asset at the end of the eighth year of its estimated life for $16,000 cash. The asset's life was originally estimated to be 10 years. The original cost was $85,000 with an estimated residual value of $8,500. The asset was being depreciated using the straight-line method. What was the gain or loss on the disposal? Questionarrow_forward
- Toones Industries is planning to sell 1,050 boxes of porcelain tiles, with production estimated at 1,020 boxes during June. Each box of tile requires 38 pounds of clay compound and 0.3 hours of direct labor. Clay compound costs $0.45 per pound, and employees of the company are paid $13.50 per hour. Manufacturing overhead is applied at a rate of 105% of direct labor costs. Toones has 4,200 pounds of clay compound in beginning inventory and wants to have 4,900 pounds in ending inventory. What is the total amount to be budgeted in pounds for direct materials to be purchased for the month?helparrow_forwardCarter Company disposed of an asset at the end of the eighth year of its estimated life for $16,000 cash. The asset's life was originally estimated to be 10 years. The original cost was $85,000 with an estimated residual value of $8,500. The asset was being depreciated using the straight-line method. What was the gain or loss on the disposal?arrow_forwardSubject: general accountingarrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College



