Survey of Accounting (Accounting I)
8th Edition
ISBN: 9781305961883
Author: Carl Warren
Publisher: Cengage Learning
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Chapter 14, Problem 14.4.1P
To determine
Concept Introduction:
Divisional income statement shows the
To Calculate:
The Profit Margin, Investment Turnover, and
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The vice president of operations of Moab Bike Company is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year ending October 31, 20Y9, for each division are as follows:
Instructions
Prepare condensed divisional income statements for the year ended October 31, 20Y9, assuming that there were no service department charges.
Touting Bike Division
Trial Bike Division
The vice president of operations of Scott Hall and Associates 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:
Category
Road Bike Division
Mountain Bike Division
Sales
$1,750,000
$1,810,000
Cost of goods sold
1,300,000
1,440,000
Operating expenses
202,000
236,800
Invested assets
1,400,000
800,000
Prepare condensed divisional income statements for the year ended December 31, 2021, assuming that there were no service department charges.
Using the DuPont formula for return on investment, determine the profit margin percentage, investment turnover, and return on investment for each division. (Round percentages and the investment turnover to two places behind the decimal.)
If management’s minimum acceptable return on investment is 10%, determine the residual income for each division.
In your own words…
Divisional Performance Analysis and Evaluation
The vice president of operations of Free Ride Bike Company is evaluating the performance of two divisions organized as investment centers. Investe
assets and condensed income statement data for the past year for each division are as follows:
Sales
Cost of goods sold
Operating expenses
Invested assets
Required:
Road Bike Division
$ 5,610,000
2,468,000
2,076,100
5,100,000
Mountain Bike Division
$ 5,880,000
2,764,000
1,763,600
4,200,000
1. Prepare condensed divisional income statements for the year ended December 31, 20Y7, assuming that there were no service department
charges.
Free Ride Bike Company
Divisional Income Statements
For the Year Ended December 31, 20Y7
Road Bike Division Mountain Bike Division
Sales
Cost of goods sold
Gross profit
Operating expenses
Income from operations
Chapter 14 Solutions
Survey of Accounting (Accounting I)
Ch. 14 - When the manager has the responsibility and...Ch. 14 - The Accounts Payable Department has expenses of...Ch. 14 - Division A of Kern Co. has sales of $350,000, cost...Ch. 14 - Division L of Liddy Co. has a return on investment...Ch. 14 - Which approach to transfer pricing uses the price...Ch. 14 - Prob. 1CDQCh. 14 - Prob. 2CDQCh. 14 - Prob. 3CDQCh. 14 - Prob. 4CDQCh. 14 - Weyerhaeuser developed a system that assigns...
Ch. 14 - What is the major shortcoming of using operating...Ch. 14 - Prob. 7CDQCh. 14 - In a decentralized company in which the divisions...Ch. 14 - Prob. 9CDQCh. 14 - Prob. 10CDQCh. 14 - Prob. 11CDQCh. 14 - Prob. 12CDQCh. 14 - Why would standard cost be a more appropriate...Ch. 14 - Prob. 14CDQCh. 14 - Budget performance reports for cost centers...Ch. 14 - Divisional income statements The following data...Ch. 14 - Prob. 14.3ECh. 14 - Prob. 14.4ECh. 14 - Service department charges In divisional income...Ch. 14 - Service department charges and activity bases...Ch. 14 - Divisional income statements with service...Ch. 14 - Corrections to service department charges Panda...Ch. 14 - Profit center responsibility reporting On-Demand...Ch. 14 - Prob. 14.10ECh. 14 - Prob. 14.11ECh. 14 - Prob. 14.12ECh. 14 - Profit margin, investment turnover, and return on...Ch. 14 - Prob. 14.14ECh. 14 - Determining missing items in return on investment...Ch. 14 - Prob. 14.16ECh. 14 - Prob. 14.17ECh. 14 - Prob. 14.18ECh. 14 - Budget performance report for a cost center Sneed...Ch. 14 - Budget performance report for a cost center Sneed...Ch. 14 - Profit center responsibility reporting A-One...Ch. 14 - Profit center responsibility reporting A-One...Ch. 14 - Profit center responsibility reporting A-One...Ch. 14 - Prob. 14.3.1PCh. 14 - Divisional income statements and return on...Ch. 14 - Prob. 14.3.3PCh. 14 - Prob. 14.4.1PCh. 14 - Prob. 14.4.2PCh. 14 - Prob. 14.4.3PCh. 14 - Effect of proposals on divisional performance A...Ch. 14 - Prob. 14.4.5PCh. 14 - Prob. 14.5.1PCh. 14 - Prob. 14.5.2PCh. 14 - Prob. 14.5.3PCh. 14 - Prob. 14.5.4PCh. 14 - Prob. 14.6.1PCh. 14 - Prob. 14.6.2PCh. 14 - Prob. 14.6.3PCh. 14 - Prob. 14.6.4PCh. 14 - Prob. 14.6.5PCh. 14 - Balanced scorecard American Express Company (AXP)...Ch. 14 - Balanced scorecard Several years ago. United...Ch. 14 - Balanced scorecard Delta Air Lines, Inc. (DAL)...Ch. 14 - Balanced scorecard Costco Wholesale Corporation...Ch. 14 - Prob. 14.5MBACh. 14 - Prob. 14.1CCh. 14 - Prob. 14.2CCh. 14 - Prob. 14.3.1CCh. 14 - Prob. 14.3.2CCh. 14 - Prob. 14.3.3CCh. 14 - Prob. 14.3.4CCh. 14 - Prob. 14.4.1CCh. 14 - Prob. 14.4.2CCh. 14 - Prob. 14.4.3CCh. 14 - Prob. 14.4.4CCh. 14 - Prob. 14.5.1CCh. 14 - Prob. 14.5.2CCh. 14 - Prob. 14.5.3CCh. 14 - Prob. 14.5.4CCh. 14 - Prob. 14.5.5CCh. 14 - Prob. 14.5.6C
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- Effect of proposals on divisional performance A condensed income statement for the Commercial Division of Maxell Manufacturing Inc. for the year ended December 31, 20Y9, is as follows: Assume that the Commercial Division received no allocations from support departments. The president of Maxell Manufacturing has indicated that the divisions return on a 2,500,000 investment must be increased to at least 21% by the end of the next year if operations are to continue. The division manager is considering the following three proposals: Proposal 1: Transfer equipment with a book value of 312,500 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would exceed the amount of depreciation expense on the old equipment by 105,000. This increase in expense would be included as part of the cost of goods sold. Sales would remain unchanged. Proposal 2: Purchase new and more efficient machining equipment and thereby reduce the cost of goods sold by 560,000 after considering the effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old equipment, which has no remaining book value, would be scrapped at no gain or loss. The new equipment would increase invested assets by an additional 1,875,000 for the year. Proposal 3: Reduce invested assets by discontinuing a product line. This action would eliminate sales of 595,000, reduce cost of goods sold by 406,700, and reduce operating expenses by 175,000. Assets of 1,338,000 would be transferred to other divisions at no gain or loss. Instructions 1. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the Commercial Division for the past year. 2. Prepare condensed estimated income statements and compute the invested assets for each proposal. 3. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. Round the investment turnover and return on investment to one decimal place. 4. Which of the three proposals would meet the required 21% return on investment? 5. If the Commercial Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet the presidents required 21% return on investment?arrow_forwardDivisional performance analysis and evaluation The vice president of operations of Free Ride Bike 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: Instructions 1. Prepare condensed divisional income statements for the year ended December 31, 20Y7, assuming that there were no support department allocations. 2. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each division. Round percentages and the investment turnover to one decimal place. 3. If managements minimum acceptable return on investment is 10%, determine the residual income for each division. 4. Discuss the evaluation of the two divisions, using the performance measures determined in parts (1), (2), and (3).arrow_forwardEffect of proposals on divisional performance A condensed income statement for the Jet Ski Division of Amazing Rides Inc. for the year ended December 31. 20Y2, is as follows Assume that the Jet Ski Division received no charges from service departments. The president of Amazing Rides has indicated that the division's rate of return on a $15,000,000 investment must be increased to at least 12% by the end of the next year if operations are to continue. The division manager is considering the following three proposals Proposal 1: Transfer equipment with a book value of J3.000.000 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would exceed the amount of depreciation expense on the old equipment by $264,000. This increase in expense would be included as part of the cost of goods sold. Sales would remain unchanged. Proposal 2: Purchase new and more efficient machining equipment and thereby reduce the cost of goods sold by $480,000. Sales would remain unchanged, and the old equipment, which has no remaining book value, would be scrapped at no gain or loss. The new equipment would increase invested assets by an additional $1,000,000 for the year. Proposal 5? Reduce invested assets by discontinuing the tandem jet ski line. This action would eliminate sales of $2,280,000, cost of goods sold of $1,400,000, and operating expenses of $463,600. Assets of $4,200,000 would be transferred to other divisions at no gain or loss. Instructions Which of the three proposals would meet the required 12% return on investment?'arrow_forward
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