Divisional Income Statements and Rate of Return on Investment Analysis The manag

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Divisional Income Statements and Rate of Return on Investment Analysis

The management of Edward Baird Company is evaluating each division as a basis for planning a future expansion of operations.

Required:

1. Prepare condensed divisional income statements for the three divisions, assuming that there were no service department charges.

2. Using the DuPont formula for rate of return on investment, compute the profit margin, investment turnover, and rate of return on investment for each division. If required, round your final answer to one decimal place.

3. If available funds permit the expansion of operations of only one division, which of the divisions would you recommend for expansion, based on parts (1) and (2)? Explain.

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1. Prepare condensed divisional income statements for the three divisions, assuming that there were no service department charges.

Edward Baird Company Divisional Income Statements For the Year Ended June 30, 2012 Mutual Fund Division Electronic Brokerage Division Investment Banking Division Fee revenue $ $ $ Operating expenses Income from operations $ $ $

Explanation / Answer

Hi,

Please find the answer as follows:

Part C:

Investment Banking Division

Thanks.

Edward Baird Company
Divisional Income Statements
For the Year Ended June 30, 2012
Mutual Fund Division Electronic Brokerage Division Investment Banking Division
Fee Revenue 3450000 2800000 3800000
Operating Expenses 2415000 2632000 2850000
Income From Operations 1035000 168000 950000











Profit Margin Investment Turnover ROI
Mutual Fund Division 30% 1.7 18%
Electronic Brokerage Division 6% 0.3 21%
Investment Banking Division 25% 1.3 20%

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