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 | $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 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)? 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 rate of 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)? Retail Bakeries Cereal Snack Cake |
Solutions
Expert Solution
Solution 1:
| Dviisional Income Statement - Crunchy Granola Company | |||
| Particulars | Cereal Division | Snack Cake division | Retail Bakeries Division |
| Sales | $25,000,000.00 | $8,000,000.00 | $9,750,000.00 |
| Cost of goods sold | $16,670,000.00 | $5,575,000.00 | $6,795,000.00 |
| Gross Profit | $8,330,000.00 | $2,425,000.00 | $2,955,000.00 |
| Operating Expenses | $7,330,000.00 | $1,945,000.00 | $2,272,500.00 |
| Net Operating Income | $1,000,000.00 | $480,000.00 | $682,500.00 |
Solution 2:
| Profit Margin - Crunchy Granola Company | |||||||
| Particulars | Choose Numerator | / | Choose denomerator | = | Profit Margin | ||
| Details | Amount | Details | Amount | ||||
| Cereal Division | Operating Income | $1,000,000.00 | Sales | $25,000,000.00 | 4.00% | ||
| Snack Cake division | Operating Income | $480,000.00 | Sales | $8,000,000.00 | 6.00% | ||
| Retail Bakeries Division | Operating Income | $682,500.00 | Sales | $9,750,000.00 | 7.00% | ||
| Investment Turnover - Crunchy Granola Company | |||||||
| Particulars | Choose Numerator | / | Choose denomerator | = | Investment Turnover | ||
| Details | Amount | Details | Amount | ||||
| Cereal Division | Sales | $25,000,000.00 | Average invested assets | $10,000,000.00 | 2.50 | ||
| Snack Cake division | Sales | $8,000,000.00 | Average invested assets | $4,000,000.00 | 2.00 | ||
| Retail Bakeries Division | Sales | $9,750,000.00 | Average invested assets | $6,500,000.00 | 1.50 | ||
| Return on Investment | |||||
| Particulars | Profit Margin | * | Investment Turnover | = | Return on Investment |
| Cereal Division | 4.00% | 2.50 | 10.00% | ||
| Snack Cake division | 6.00% | 2.00 | 12.00% | ||
| Retail Bakeries Division | 7.00% | 1.50 | 10.50% | ||
Solution 3:
As ROI for snack cake division is highest therefore available funds should be utilized for expansion of snack cake division.
ekkarill92 answered 1 year agoRelated Solutions
The Crunchy Granola Company is a diversified food company that specializes in all natural foods. The...
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specializes in all natural foods. The company has three operating
divisions organized as investment centers. Condensed data taken
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Snack
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Retail Bakeries Division
Sales
$27,100,000
$8,040,000
$9,750,000
Cost of goods sold
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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
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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:
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Snack
Cake Division
Retail Bakeries Division
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$8,120,000
$9,750,000
Cost of goods sold
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5,555,000
6,720,000
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1,915,400
2,542,500
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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
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he Crunchy Granola Company is a diversified food company that specializes in all natural foods. The...
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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
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Allowance for Doubtful
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Merchandise Inventory
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Dr. Allowance for Doubtful Accounts 470 Cr. Merchandise Inventory
86,500 Dr. Supplies 10,900 Dr. Prepaid Insurance 6,000 Dr. Office
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Allowance for Doubtful
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Office Equipment
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Accum. Depreciation—Office
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Cr.
Warehouse Equipment
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Accum. Depreciation—Warehouse
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Notes Payable—Bank
33,000
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