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 $2,160,000 $2,520,000 Cost of goods sold 1,270,000 1,330,000 Operating expenses 652,400 837,200 Invested assets 744,828 2,100,000 Required: 1. Prepare condensed divisional income statements for the year ended December 31, assuming that there were no service department charges. 2. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each division. If required, round your final answers to one decimal place. 3. If management wants a minimum acceptable return of 17.00%, determine the residual income for each division. Use the minus sign to indicate a negative income. Round final answers to nearest whole dollar.
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 $2,160,000 $2,520,000 Cost of goods sold 1,270,000 1,330,000 Operating expenses 652,400 837,200 Invested assets 744,828 2,100,000 Required: 1. Prepare condensed divisional income statements for the year ended December 31, assuming that there were no service department charges. 2. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each division. If required, round your final answers to one decimal place. 3. If management wants a minimum acceptable return of 17.00%, determine the residual income for each division. Use the minus sign to indicate a negative income. Round final answers to nearest whole dollar.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 | $2,160,000 | $2,520,000 |
| Cost of goods sold | 1,270,000 | 1,330,000 |
| Operating expenses | 652,400 | 837,200 |
| Invested assets | 744,828 | 2,100,000 |
| Required: | |
| 1. | Prepare condensed divisional income statements for the year ended December 31, assuming that there were no service department charges. |
| 2. | Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each division. If required, round your final answers to one decimal place. |
| 3. | If management wants a minimum acceptable return of 17.00%, determine the residual income for each division. Use the minus sign to indicate a negative income. Round final answers to nearest whole dollar. |
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