
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

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Chapter 24 Solutions
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