Divisional Income Statements and Rate of Return on Investment Analysis Sunshine
ID: 2569592 • Letter: D
Question
Divisional Income Statements and Rate of Return on Investment Analysis
Sunshine Food Company is a diversified food company that specializes in all natural foods. The company has three operating divisions organized as A decentralized unit in which the manager has the responsibility and authority to make decisions that affect not only costs and revenues but also the fixed assets available to the center.investment centers. Condensed data taken from the records of the three divisions for the year ended June 30, 2016, 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 The costs of services provided by an internal service department and transferred to a responsibility center.service department charges.
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2. Using the An expanded expression of return on investment determined by multiplying the profit margin by the investment turnover.DuPont formula for A measure of managerial efficiency in the use of investments in assets, computed as income from operations divided by invested assets.rate of return on investment, compute the A component of the rate of return on investment, computed as the ratio of income from operations to sales.profit margin, A component of the rate of return on investment, computed as the ratio of sales to invested assets.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
(A) Cereal
(B) Snack Cake
(C) Retail Bakeries
Division first.
Cereal
Division
Snack Cake
Division Retail
Bakeries
Division Sales $3,300,000 $3,600,000 $3,180,000 Cost of goods sold 2,010,000 2,230,000 1,880,000 Operating expenses 630,000 794,000 409,600 Invested assets 3,000,000 4,000,000 5,300,000
Explanation / Answer
DIVISIONAL INCOME STATEMENT CEREAL SNACK CAKE RETAIL BAKERS Sales 3300000 3600000 3180000 Less: Cost of Goods sold 2010000 2230000 1880000 Gross profit 1290000 1370000 1300000 Less: Operating expense 630000 794000 409600 Income from operations 660000 576000 890400 Profit margin = Income from operations / Sales *100 Cereal = 660000/3300,000 *100 = 20% Snack Cake = 576,000/3600,000 *100 = 16% Retail bakers = 890400 /3180,000 *100 = 28% investment turnover = Net Sales / Invested Assets Cereal = 3300,000 /3000,000 = 1.1 Snack cake = 3600,000 /4000,000 = 0.9 Retail bakers= 3180,000 /5300,000 = 0.6 ROI = Profit margin * Investment turnover Profit margin Investment turnover ROI Cereal 20% 1.1 22% Snack Cake 16% 0.9 14.40% Retail bakers 28% 0.6 16.80% With limited funds, the company should consider the expansion of CEREAL DIVISION