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In: Accounting

Please answer all three parts to question 1. 1A. The income from operations and the amount...

Please answer all three parts to question 1.

1A. The income from operations and the amount of invested assets in each division of Beck Industries are as follows:

	Income from Operations	Invested Assets
Retail Division	$167,200	$760,000
Commercial Division	74,000	370,000
Internet Division	69,700	410,000

a. Compute the return on investment for each division. (Round to the nearest whole number.)

Division	Percent
Retail Division	%
Commercial Division	%
Internet Division	%

b. Which division is the most profitable per dollar invested?

1B. The income from operations and the amount of invested assets in each division of Beck Industries are as follows:

	Income from Operations	Invested Assets
Retail Division	$109,200	$520,000
Commercial Division	106,400	560,000
Internet Division	129,600	810,000

Assume that management has established a 12% minimum acceptable return for invested assets.

a. Determine the residual income for each division.

	Retail Division	Commercial Division	Internet Division
Income from operations	$109,200	$106,400	$129,600
Minimum acceptable income from operations as a percent of invested assets
Residual income	$	$	$

b. Which division has the most residual income?

1C. The condensed income statement for the Consumer Products Division of Fargo Industries Inc. is as follows (assuming no service department charges):

Sales	$776,000
Cost of goods sold	349,200
Gross profit	$426,800
Administrative expenses	271,600
Income from operations	$155,200

The manager of the Consumer Products Division is considering ways to increase the return on investment.

a. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment of the Consumer Products Division, assuming that $1,940,000 of assets have been invested in the Consumer Products Division. Round the investment turnover to one decimal place.

Profit margin	%
Investment turnover
Rate of return on investment	%

b. If expenses could be reduced by $38,800 without decreasing sales, what would be the impact on the profit margin, investment turnover, and return on investment for the Consumer Products Division? Round the investment turnover to one decimal place.

Profit margin	%
Investment turnover
Rate of return on investment	%

Expert Solution

1A.		Income from Operations	Invested Assets	return on investment
a	Retail Division	$167,200	$760,000	22.00%

	Commercial Division	$74,000	$370,000	20.00%

	Internet Division	$69,700	$410,000	17.00%

	Note: return on investment = Income from operation/Invested Assets


b	Retail Division is the most profitable division per dollar invested


1B
a		Income from Operations (A)	Invested Assets (B.)	Minimum required return on assets (C)	(BxC)	residual income (A-BxC)
	Retail Division	$109,200	$520,000	12%	$62,400	$46,800

	Commercial Division	$106,400	$560,000	12%	$67,200	$39,200

	Internet Division	$129,600	$810,000	12%	$97,200	$32,400


b	Retail Division has the most residual income


1C	Sales	$776,000
	Cost of goods sold	$349,200
	Gross profit	$426,800
	Administrative expenses	$271,600
	Income from operations	$155,200

	Note:
	Profit margin = income from operations / sales		20.00%
	Investment turnover = sales / invested assets		0.40
	Rate of return on investment = profit margin x investment turnover		8.00%

b	Sales	$776,000
	Cost of goods sold	$310,400
	Gross profit	$465,600
	Administrative expenses	$271,600
	Income from operations	$194,000

	Note:
	Profit margin = income from operations / sales		25.00%
	Investment turnover = sales / invested assets		0.40
	Rate of return on investment = profit margin x investment turnover		10.00%

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