Chapter 24, Problem 24.5CP

Evaluating divisional performance

 The three divisions of Yummy Foods are Snack Goods, Cereal, and Frozen Foods. The divisions are structured as investment centers. The following responsibility reports were prepared for the three divisions for tile prior year:

	Snack Goods	Cereal	Frozen Foods
Revenues	$2,200,000	$2,520,000	$2,100,000
Operating expenses	1,366,600	1,122,000	976,800
Income from operations before
service department charges	$833,400	$1,398,000	$1,123,200
Service department charges:
Promotion	$300,000	$600,000	$468,000
Legal	137,400	243,600	235,200
Total service department charges	$437,400	$843.600	$703,200
Income from operations	$396,000	$554,400	$420,000
Invested assets	$2,000,000	$1,680,000	$1,750,000

 1.    Which division is making the best use of invested assets and should be given priority for future capital investments?

 2.    Assuming that the minimum acceptable return on new projects is 19%, would all investments that produce a return in excess of 19% be accepted by the divisions? Explain.

 3.    Identify opportunities for improving the company’s financial performance