![Working Papers, Volume 1, Chapters 1-15 for Warren/Reeve/Duchac's Corporate Financial Accounting, 13th + Financial & Managerial Accounting, 13th](https://www.bartleby.com/isbn_cover_images/9781285869582/9781285869582_largeCoverImage.gif)
Evaluating division performance over time
The Norsk Division of Gridiron Concepts Inc. has been experiencing revenue and profit growth during the years 2014-2016. The divisional income statements follow:
Assume that there are no charges from Service departments. The vice president of the division, Tom Yang, is proud of his division’s performance over the last three years. The president of Gridiron Concepts Inc., Anna Evans, is discussing the division’s performance with Tom, as follows:
Tom: As you can see, we’ve had a successful three years in the Norsk Division.
Anna: I’m not too sure.
Tom: What do you mean? Look at our results. Our income from operations has more than doubled, while our profit margins are improving.
Anna: I am looking at your results. However, your income statements fail to include one very important piece of information, namely, the invested assets. You have been investing a great deal of assets into the division. You had $735,000 in invested assets in 2014, $1,500,000 in 2014 and $3,500,000 in 2016.
Tom: You are right. I’ve needed the assets in order to upgrade our technologies and expand our operations. The additional assets are one reason we have been able to grow and improve our profit margins. I don’t see that this is a problem.
Anna: The problem is that we must maintain a 15%
- 1. Determine the profit margins for the Norsk Division for 2014-2016.
- 2. Compute the investment turn over for the Norsk Division for 2014-2016. Round to two decimal places.
- 3. Compute the rate of
return on investment for the Norsk Division for 2014-2016. - 4. Evaluate the division’s performance over the 2014-2016 time period. Why was Anna concerned about the performance?
(1)
![Check Mark](/static/check-mark.png)
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:
To compute: Profit margin of N Division for the years 2014 to 2016
Explanation of Solution
Determine profit margin of N Division for the year 2014.
Determine profit margin of N Division for the year 2015.
Determine profit margin of N Division for the year 2016.
(2)
![Check Mark](/static/check-mark.png)
Investment turnover: This ratio gauges the operating efficiency by quantifying the amount of sales generated from the assets invested.
Formula of investment turnover:
To compute: Investment turnover of N Division for the years 2014 to 2016.
Explanation of Solution
Determine investment turnover of N Division for the year 2014.
Determine investment turnover of N Division for the year 2015.
Determine investment turnover of N Division for the year 2016.
(3)
![Check Mark](/static/check-mark.png)
Return on investment (ROI): This financial ratio evaluates how efficiently the assets are used in earning income from operations. So, ROI is a tool used to measure and compare the performance of a units or divisions or a companies.
Formula of ROI:
To compute: Return on investment (ROI) of N Division for the years 2014 to 2016
Explanation of Solution
Determine ROI of N Division for the year 2014.
Determine ROI of N Division for the year 2015.
Determine ROI of N Division for the year 2016.
(4)
![Check Mark](/static/check-mark.png)
To evaluate: Division N’s performance
Explanation of Solution
Evaluation of N Division’s performance:
By observing the operating results of N Division, the gross profit, income from operations, and revenues, it can be concluded that the performance of the division has increased considerably from 2014 to 2016. To know the actual performance, RPOI is computed in an extended form by using the profit margin, investment turnover as follows:
For 2014:
For 2015:
For 2016:
These computations show that the profitability of the division deteriorated from 2014 to 2016, due to the drop in investment turnover. So, the investments could not earn the required income, leading to decreased ROI. The assets invested were unable to earn the enough revenue.
This is a decreasing trend in the division’s performance.
Want to see more full solutions like this?
Chapter 23 Solutions
Working Papers, Volume 1, Chapters 1-15 for Warren/Reeve/Duchac's Corporate Financial Accounting, 13th + Financial & Managerial Accounting, 13th
- Nonearrow_forwardWhat is the amount of the net fixed assets?arrow_forward9 A B C D E 4 Ramsey Miller Style, Inc. manufactures a product which requires 15 pounds of direct materials at a cost of $8 5 per pound and 5.0 direct labor hours at a rate of $17 per hour. Variable overhead is budgeted at a rate of $3 per direct labor hour. Budgeted fixed overhead is $433,000 per month. The company's policy is to end each month with direct materials inventory equal to 45% of the next month's direct materials requirement, and finished 7 goods inventory equal to 60% of next month's sales. August sales were 13,400 units, and marketing expects 8 sales to increase by 500 units in each of the upcoming three months. At the end of August, the company had 9 95,850 pounds of direct materials in inventory, and 8,340 units in finished goods inventory. 10 11 August sales 12 Expected increase in monthly sales 13 Desired ending finished goods (units) 14 Selling price per unit 15 Direct materials per unit 16 Direct materials cost 17 Direct labor hours (DLHS) per unit 18 Direct labor…arrow_forward
- Sherrod, Incorporated, reported pretax accounting income of $84 million for 2024. The following information relates to differences between pretax accounting income and taxable income: a. Income from installment sales of properties included in pretax accounting income in 2024 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end 2024 had a balance of $4 million (representing portions of 2023 and 2024 installment sales), expected to be collected equally in 2025 and 2026. b. Sherrod was assessed a penalty of $4 million by the Environmental Protection Agency for violation of a federal law in 2024. The fine is to be paid in equal amounts in 2024 and 2025. c. Sherrod rents its operating facilities but owns one asset acquired in 2023 at a cost of $88 million. Depreciation is reported by the straight-line method, assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight- line depreciation the…arrow_forwardProvide answerarrow_forwardNonearrow_forward
- The depreciation expense for the truth is 20X1arrow_forwardDirect materials price variancearrow_forward$ 36,000 204,000 The Drysdale, Koufax, and Marichal partnership has the following balance sheet immediately prior to liquidation: Cash Noncash assets Liabilities Drysdale, loan $ 50,000 10,000 Total assets $ 240,000 Drysdale, capital (50%) Koufax, capital (30%) Marichal, capital (20%) Total liabilities and capital 70,000 60,000 50,000 $ 240,000 Required: a-1. Determine the maximum loss that can be absorbed in Step 1. Then, assuming that this loss has been incurred, determine the next maximum loss that can be absorbed in Step 2. a-2. Liquidation expenses are estimated to be $15,000. Prepare a predistribution schedule to guide the distribution of cash. b. Assume that assets costing $74,000 are sold for $60,000. How is the available cash to be divided? Complete this question by entering your answers in the tabs below.arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
![Text book image](https://www.bartleby.com/isbn_cover_images/9781305970663/9781305970663_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337912020/9781337912020_smallCoverImage.jpg)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337902663/9781337902663_smallCoverImage.jpg)