Divisional Income Statements and Rate of Return on Investment Analysis Sunshine
ID: 2486125 • Letter: D
Question
Divisional Income Statements and Rate of Return on Investment Analysis
Sunshine Food Company is a diversified food company with three operating divisions organized as investment centers. Condensed data taken from the records of the three divisions for the year ended June 30, 2014, are as follows:
The management of Sunshine Food 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.
Sunshine Food Company
Divisional Income Statements
For the Year Ended June 30, 2014
Cereal Division
Snack Cake Division
Retail Bakeries Division
Sales
$
$
$
Cost of goods sold
Gross Profit
$
$
$
Operating expenses
Income from operations
$
$
$
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1. For each division, subtract operating expenses from gross profit.
Learning Objective 4.
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. Round your answers to one decimal place.
3. When faced with limited funds for expansion, management should consider an expansion of the SelectCerealSnack CakeRetail BakeriesCorrect 10 of Item 2 Division first.
Cereal
Division
Snack Cake
Division Retail
Bakeries
Division Sales $ 2,040,000 $ 2,200,000 $1,960,000 Cost of goods sold 1,240,000 1,360,000 1,160,000 Operating expenses 392,000 356,000 251,200 Invested assets 1,700,000 2,200,000 2,800,000
Explanation / Answer
1. Divisional Income statement for the year ended 30th June 2014 ( Amt in $)
2.
Net profit margin (%) = Income from operations / sales *100
Investment turnover = sales / Investment
ROI (%) = Income from operations / investment * 100
3. when faced with limited funds for expansion, management should consider an expansion of cereal division since the ROI on the cereal division is the highest when compared to the other two divisions.
cereal division snack cake division retail bakeries division (a) Sales 2040000 2200000 1960000 (b) Cost of goods sold 1240000 1360000 1160000 (c') Gross profit (a-b) 800000 840000 800000 (d) Operating expenses 392000 356000 251200 (e) Income from operations (c-d) 408000 484000 548800