Question
In: Accounting
The Crunchy Granola Company is a diversified food company that specializes in all natural foods. The...
The Crunchy Granola Company is a diversified food company that specializes in all natural foods. The company has three operating divisions organized as investment centers. Condensed data taken from the records of the three divisions for the year ended June 30, 20Y7, are as follows:
| Cereal Division | Snack Cake Division | Retail Bakeries Division | |
|---|---|---|---|
| Sales | $27,100,000 | $8,040,000 | $9,750,000 |
| Cost of goods sold | 16,690,000 | 5,575,000 | 6,710,000 |
| Operating expenses | 8,784,000 | 1,741,400 | 2,260,000 |
| Invested assets | 9,033,333 | 2,010,000 | 3,900,000 |
The management of The Crunchy Granola Company is evaluating each division as a basis for planning a future expansion of operations.
| Required: | |
| 1. | Prepare condensed divisional income statements for the three divisions, assuming that there were no service department charges. |
| 2. | Using the DuPont formula for return on investment, compute the profit margin, investment turnover, and return on investment for each division. If required, round your final answers to one decimal place. |
| 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)? |
Solutions
Expert Solution
1.
| The Crunchy Granola Company | |||
| Condensed Divisional Income Statements | |||
| Cereal Division | Snack Cake Division | Retail Bakeries Division | |
| Sales $ | 27100000 | 8040000 | 9750000 |
| Cost of goods sold | 16690000 | 5575000 | 6710000 |
| Gross profit | 10410000 | 2465000 | 3040000 |
| Operating expenses | 8784000 | 1741400 | 2260000 |
| Income from operations | 1626000 | 723600 | 780000 |
2.
| Division | Profit Margin | Investment Turnover | ROI |
| Cereal Division | 6.0% | 3.0 | 18.0% |
| Snack Cake Division | 9.0% | 4.0 | 36.0% |
| Retail Bakeries Division | 8.0% | 2.5 | 20.0% |
Working:
DuPont formula: Rate of return on investment = Profit margin x Investment turnover
Profit margin = Net income / Sales
Investment turnover = Sales / Total assets
| Cereal Division | Snack Cake Division | Retail Bakeries Division | |
| Net income | 1626000 | 723600 | 780000 |
| Sales | 27100000 | 8040000 | 9750000 |
| Profit margin | 6.0% | 9.0% | 8.0% |
| Sales | 27100000 | 8040000 | 9750000 |
| Invested assets | 9033333 | 2010000 | 3900000 |
| Investment turnover | 3.0 | 4.0 | 2.5 |
| Rate of return on investment | 18.0% | 36.0% | 20.0% |
3. The division recommended for expansion would be the Snack Cake Division since it generates the highest rate of return on investment of 36% as compared to the other two divisions.
ekkarill92 answered 2 years agoRelated Solutions
The Crunchy Granola Company is a diversified food company that specializes in all natural foods. The...
The Crunchy Granola Company is a diversified food company that
specializes in all natural foods. The company has three operating
divisions organized as investment centers. Condensed data taken
from the records of the three divisions for the year ended June 30,
20Y7, are as follows:
Cereal Division
Snack
Cake Division
Retail Bakeries Division
Sales
$25,000,000
$8,000,000
$9,750,000
Cost of goods sold
16,670,000
5,575,000
6,795,000
Operating expenses
7,330,000
1,945,000
2,272,500
Invested assets
10,000,000
4,000,000
6,500,000
The management of The Crunchy Granola...
The Crunchy Granola Company is a diversified food company that specializes in all natural foods. The...
The Crunchy Granola Company is a diversified food company that
specializes in all natural foods. The company has three operating
divisions organized as investment centers. Condensed data taken
from the records of the three divisions for the year ended June 30,
20Y7, are as follows:
Cereal Division
Snack
Cake Division
Retail Bakeries Division
Sales
$25,000,000
$8,120,000
$9,750,000
Cost of goods sold
16,620,000
5,555,000
6,720,000
Operating expenses
7,130,000
1,915,400
2,542,500
Invested assets
7,142,857
2,030,000
3,250,000
The management of The Crunchy Granola...
The Crunchy Granola Company is a diversified food company that specializes in all natural foods. The...
The Crunchy Granola Company is a diversified food company that
specializes in all natural foods. The company has three operating
divisions organized as investment centers. Condensed data taken
from the records of the three divisions for the year ended June 30,
20Y7, are as follows:
Cereal Division
Snack Cake Division
Retail Bakeries Division
Sales
$27,100,000
$8,040,000
$9,750,000
Cost of goods sold
16,690,000
5,575,000
6,710,000
Operating expenses
8,784,000
1,741,400
2,260,000
Invested assets
9,033,333
2,010,000
3,900,000
The management of The Crunchy Granola...
The Crunchy Granola Company is a diversified food company that specializes in all natural foods. The...
The Crunchy Granola Company is a diversified food company that
specializes in all natural foods. The company has three operating
divisions organized as investment centers. Condensed data taken
from the records of the three divisions for the year ended June 30,
20Y7, are as follows:
Cereal Division
Snack Cake Division
Retail Bakeries Division
Sales
$27,300,000
$8,420,000
$9,750,000
Cost of goods sold
16,660,000
5,570,000
6,735,000
Operating expenses
9,548,000
2,260,600
2,235,000
Invested assets
5,460,000
2,105,000
4,875,000
The management of The Crunchy Granola...
he Crunchy Granola Company is a diversified food company that specializes in all natural foods. The...
he Crunchy Granola Company is a diversified food company that
specializes in all natural foods. The company has three operating
divisions organized as investment centers. Condensed data taken
from the records of the three divisions for the year ended June 30,
20Y7, are as follows: Cereal Division Snack Cake Division Retail
Bakeries Division Sales $27,300,000 $8,420,000 $9,750,000 Cost of
goods sold 16,660,000 5,570,000 6,735,000 Operating expenses
9,548,000 2,260,600 2,235,000 Invested assets 5,460,000 2,105,000
4,875,000 The management of The Crunchy Granola...
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operating divisions organized as investment centers. Condensed data
taken from the records of the three divisions for the year ended
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Retail Bakeries Division
Sales
$17,600,000
$18,000,000
$9,520,000
Cost of goods sold
10,600,000
12,550,000
6,630,000
Operating expenses
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4,730,000
2,318,800
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6,800,000
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The Whole Life Baked Goods Company is a diversified food company that specializes in all natural...
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operating divisions organized as investment centers. Condensed data
taken from the records of the three divisions for the year ended
June 30, 20Y7, are as follows:
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Snack
Cake Division
Retail Bakeries Division
Sales
$17,600,000
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$9,520,000
Cost of goods sold
10,600,000
12,550,000
6,630,000
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Healthy Eating Foods Company is a distributor of nutritious snack foods such as granola bars. On...
Healthy Eating Foods Company is a distributor of nutritious
snack foods such as granola bars. On December 31, 2019, the firm’s
general ledger contained the accounts and balances that
follow.
ACCOUNTS AND BALANCES
Cash
$
30,700
Dr.
Accounts Receivable
35,800
Dr.
Allowance for Doubtful
Accounts
480
Cr.
Merchandise Inventory
86,600
Dr.
Supplies
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Dr.
Prepaid Insurance
6,120
Dr.
Office Equipment
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Dr.
Accum. Depreciation—Office
Equipment
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Warehouse Equipment
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Dr.
Accum. Depreciation—Warehouse
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10,800
Cr.
Notes Payable—Bank
35,000
Cr....
Healthy Eating Foods Company is a distributor of nutritious snack foods such as granola bars. On...
Healthy Eating Foods Company is a distributor of nutritious
snack foods such as granola bars. On December 31, 2019, the firm’s
general ledger contained the accounts and balances that follow.
ACCOUNTS AND BALANCES Cash $ 30,600 Dr. Accounts Receivable 35,700
Dr. Allowance for Doubtful Accounts 470 Cr. Merchandise Inventory
86,500 Dr. Supplies 10,900 Dr. Prepaid Insurance 6,000 Dr. Office
Equipment 9,800 Dr. Accum. Depreciation—Office Equipment 2,700 Cr.
Warehouse Equipment 36,300 Dr. Accum. Depreciation—Warehouse
Equipment 10,600 Cr. Notes Payable—Bank 34,500 Cr....
Healthy Eating Foods Company is a distributor of nutritious snack foods such as granola bars. On...
Healthy Eating Foods Company is a distributor of nutritious
snack foods such as granola bars. On December 31, 2019, the firm’s
general ledger contained the accounts and balances that follow.
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Cash
$
30,300
Dr.
Accounts Receivable
35,400
Dr.
Allowance for Doubtful
Accounts
440
Cr.
Merchandise Inventory
86,200
Dr.
Supplies
10,600
Dr.
Prepaid Insurance
5,640
Dr.
Office Equipment
9,700
Dr.
Accum. Depreciation—Office
Equipment
2,670
Cr.
Warehouse Equipment
34,200
Dr.
Accum. Depreciation—Warehouse
Equipment
10,000
Cr.
Notes Payable—Bank
33,000
Cr....
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