The vice president of operations of six layer computer Inc. is evaluating the performance of two divisions organized as investments centers. Invested assets and condensed income statement data for the past year for each division are as follows:
Network equipment Division Personal Computing Division
Sales $1,400,000 $1,120,000
Cost of goods sold 845,000 690,000
Operating expenses 345,000 206,000
Invested assets 1,000,000 1,400,000
1. Prepare condensed divisional income statements fro the year ended December 31, 2010, assuming that there were no service department charges.
2. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of restment for each division.
3. If management's minimum acceptable rate of return is 14%, determine the residual income fro each division.
4. Discuss the evaluation of the two divisions, using the performance measures determined in parts (1), (2), and (3)