Reference no: EM131196357
The vice president of operations of Morrison IQ Company is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows:
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Business Division
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Consumer Division
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Sales
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$ 1,430,000
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$ 1,540,000
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Cost of goods sold
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629,000
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724,000
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Operating expenses
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557,900
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523,400
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Invested assets
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1,100,000
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1,400,000
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1. Prepare condensed divisional income statements for the year ended December 31, 2014, 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 return on investment for each division. If required, round your answers to one decimal place.
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Profit Margin
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Investment Turnover
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ROI
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Business Division
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%
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%
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Consumer Division
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%
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%
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3. If management desires a minimum acceptable rate of return of 13%, determine the residual income for each division. If required, use the minus sign to indicate a negative income.
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Residual Income
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Business Division
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$
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Consumer Division
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$
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4. On the basis of residual income, the SelectBusinessConsumer Division is the more profitable of the two divisions. On the basis of income from operations, the Select Business Consumer Division is the more profitable of the two divisions.
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