vice president of operations of Morrison 1Q Company is evaluating the performanc

Question

vice president of operations of Morrison 1Q Company is evaluating the performance of two divisions orpanized as investment centers. Invested assets and condensed income statement data for the parst year for each division are as follows Sales Cost of goods sold Operating expenses $ 1,690,000 744,000 658,700 1,300,000 Consumer Division 1,760,000 827,000 563,400 1.100,000 Required 1. Prepare condensed divisional income statements for the year ended December 31, 2014, assuming that there were no service department charges Marrisen iQ Company Divisional iecome Statements For the Yeer Ended December 31, 2014 siness Divisien of goods sold Gross prof ncame trom operations 2. Unng the DuPont formule for rate of reture on nvestment, determine the proft mergin, investment turnover, and rate of return on investment for each division. If required, round youer anewers Profit Hargin

Explanation / Answer

req a: Business Consumer Sales 1690000 1760000 Cost of goods sold 744000 827000 Gross profit 946000 933000 Operating expense 658700 563400 Income from operations 287300 369600 Req b: Business Consumer Sales 1690000 1760000 Cost of goods sold 744000 827000 Gross profit 946000 933000 Operating expense 658700 563400 Income from operations 287300 369600 Invested Assets 1,300,000 1,100,000 Profit margin 17% 21% (Nnet income/Sales) Investment Turnover 1.3 1.6 (Sales /Invested assets) ROI: 22.10% 33.60% (Profit margin*Investment turnover) Req c: Business Consumer Invested Assets 1,300,000 1,100,000 Net income 287300 369600 Min. return 14% 14% Target Income 182000 154000 (Invested asset*Mmin rate) Residual income 105300 215600 (Net income-target income) reqd: On the basis of residual income, the Consumar division is more profitable. On the basis of income form operation approach, Consumer division is more profitable.

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