Bundle: Accounting, 27th + Working Papers, Chapters 1-17
27th Edition
ISBN: 9781337759892
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Chapter 24, Problem 24.3CP
To determine
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:
To compute: Profit margin, investment turnover, and return on investment (ROI), and draft a memo to the president explaining the performance of N Division
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Sales revenue
Orange Corporation has two divisions: Fruit and Flower. The following information for the past year is available for each division:
Fruit Division Flower Division
$ 660,000
495,000
$ 165,000
$ 2,062,500
$ 990,000
742,500
$ 247,500
$ 1,375,000
Cost of goods sold and operating expenses
Net operating income
Average invested assets
Orange has established a hurdle rate of 5 percent.
Required:
1-a. Compute each division's return on investment (ROI) and residual income for last year.
1-b. Determine which manager seems to be performing better.
2. Suppose Orange is investing in new technology that will increase each division's operating income by $120,000. The total
investment required is $1,500,000, which will be split evenly between the two divisions. Calculate the ROI and residual income for
each division after the investment is made.
3. Determine whether both managers will support the investment.
Complete this question by entering your answers in the tabs below.
Req 1A
Req 1B…
Question: Ivanhoe Company has four operating divisions. During the first quarter of 2025, the company reported aggregate income from operations of $226,400 and the following divisional results. Division IIIIIIIVSales $248,000$198,000$505,000$450,000Cost of goods sold
Ivanhoe Company has four operating divisions. During the first quarter of 2025, the company reported aggregate income from operations of $216,400 and the following divisional results.
Division
I
II
III
IV
Sales
$250,000
$199,000
$499,000
$443,000
Cost of goods sold
204,000
189,000
297,000
246,000
Selling and administrative expenses
76,600
54,000
56,000
52,000
Income (loss) from operations
$(30,600)
$(44,000)
$146,000
$145,000
Analysis reveals the following percentages of variable cost in each division.
Division
I
II
III
IV
Cost of goods sold
71%
91%
81%
73%
Selling and administrative expenses
37
61
49
58
Discontinuance of any division would save 50% of the fixed costs and…
Corrections to Service Department Charges for a Service Company
Wild Sun Airlines Inc. has two divisions organized as profit centers, the Passenger Division and the Cargo Division. The following divisional income statements were prepared:
Wild Sun Airlines Inc.Divisional Income StatementsFor the Year Ended December 31, 20Y9
Passenger Division
Cargo Division
Revenues
$3,025,000
$3,025,000
Operating expenses
2,450,000
2,736,000
Income from operations beforeservice department charges
$575,000
$289,000
Less service department charges:
Training
$125,000
$125,000
Flight scheduling
108,000
108,000
Reservations
151,200
384,200
151,200
384,200
Income from operations
$190,800
$(95,200)
The service department charge rate for the service department costs was based on revenues. Because the revenues of the two divisions were the same, the service department charges to each division were also the same.
The following additional…
Chapter 24 Solutions
Bundle: Accounting, 27th + Working Papers, Chapters 1-17
Ch. 24 - Differentiate between centralized and...Ch. 24 - Differentiate between a profit center and an...Ch. 24 - Prob. 3DQCh. 24 - What is the major shortcoming of using income from...Ch. 24 - In a decentralized company in which the divisions...Ch. 24 - How does using the return on investment facilitate...Ch. 24 - Why would a firm use a balanced scorecard in...Ch. 24 - What is the objective of transfer pricing?Ch. 24 - When is the negotiated price approach preferred...Ch. 24 - When using the negotiated price approach to...
Ch. 24 - Budgetary performance for cost center Caroline...Ch. 24 - Budgetary performance for cost center Conley...Ch. 24 - Service department charges The centralized...Ch. 24 - Service department charges The centralized...Ch. 24 - Prob. 24.3APECh. 24 - Income from operations for profit center Using the...Ch. 24 - Profit margin, investment turnover, and ROI Cash...Ch. 24 - Profit margin, investment turnover and ROI Briggs...Ch. 24 - Residual income The Consumer Division of Galena...Ch. 24 - Residual income The Commercial Division of Herring...Ch. 24 - Transfer pricing The materials used by the North...Ch. 24 - Transfer pricing The materials used by the...Ch. 24 - Budget performance reports for cost centers...Ch. 24 - Divisional income statements The following data...Ch. 24 - Prob. 24.3EXCh. 24 - Prob. 24.4EXCh. 24 - Service department charges In divisional income...Ch. 24 - Service department charges and activity bases...Ch. 24 - Divisional income statements with service...Ch. 24 - Corrections to service department charges for a...Ch. 24 - Profit center responsibility reporting Glades...Ch. 24 - Return on investment The income from operations...Ch. 24 - Residual income Based on the data in Exercise...Ch. 24 - Determining missing items in return computation...Ch. 24 - Profit margin, investment turnover, and return on...Ch. 24 - Prob. 24.14EXCh. 24 - Determining missing items in return and residual...Ch. 24 - Determining missing items from computations Data...Ch. 24 - Prob. 24.17EXCh. 24 - Balanced scorecard for a service company American...Ch. 24 - Building a balanced scorecard Hit-n-Kun Inc. owns...Ch. 24 - Prob. 24.20EXCh. 24 - Prob. 24.21EXCh. 24 - Budget performance report for a cost center...Ch. 24 - Profit center responsibility reporting for a...Ch. 24 - Divisional income statements and return on...Ch. 24 - Effect of proposals on divisional performance A...Ch. 24 - Divisional performance analysis and evaluation The...Ch. 24 - Prob. 24.6APRCh. 24 - Budget performance report for a cost center The...Ch. 24 - Profit center responsibility reporting for a...Ch. 24 - Divisional income statements and return on...Ch. 24 - Effect of proposals on divisional performance A...Ch. 24 - Divisional performance analysis and evaluation The...Ch. 24 - Prob. 24.6BPRCh. 24 - Prob. 24.1CPCh. 24 - Prob. 24.3CPCh. 24 - Prob. 24.4CPCh. 24 - Evaluating divisional performance The three...Ch. 24 - Evaluating division performance Last Resort...
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