Solution-Prepare condensed divisional income statements

Prepare condensed divisional income statements

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Reference no: EM132687350

Problem - Divisional income statements and rate of return on investment analysis - Earthy Grains 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, 2012, are as follows:

	Cereal Division	Snack Cake Division	Retail Bakeries Division
Sales	$4,950,000	$5,400,000	$4,896,000
Cost of goods sold	3,725,000	3,800,000	3,400,000
Operating expenses	433,000	844,000	516,800
Invested assets	5,500,000	6,750,000	4,080,000

The management of Earthy Grains Food Company is evaluating each division as a basis for planning a future expansion of operations.

Instructions -

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.

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.

Reference no: EM132687350

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Prepare condensed divisional income statements

Reference no: EM132687350

Reference no: EM132687350

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