Question

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 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. The Crunchy Granola Company Divisional Income Statements For the Year Ended June 30, 20Y7 1 Cereal Division Snack Cake Division Retail Bakeries Division 2 Sales 3 Cost of goods sold 4 Gross profit 5 Operating expenses 6 Income from operations 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. Division Profit Margin Investment Turnover ROI Cereal % % Snack Cake % % Retail Bakeries % % 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)? Cereal Retail Bakeries Snack Cake

Answer 1

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.

	Careal dicvision	snack cake	retail bakeries
Sales (a)	$                                27,300,000	$                  8,420,000	$           9,750,000
cost of goods (b)	16,660,000	5,570,000	6,735,000
gross profit c)=(a)-(b)	$                                10,640,000	$                  2,850,000	$           3,015,000
operating Expenses (d)	9,548,000	2,260,600	2,235,000
profit from operation e)=c-(d)	$                                  1,092,000	$                     589,400	$               780,000
Profit Margin (e/a)*100	4.0%	7.0%	8.0%
Investment (f)	$5,460,000	$2,105,000	$4,875,000
Investment Turnover (a/f)*100	5	4	2
Return on investment (e/f)*100	20%	28%	16%

Or we can find ROI in other way as under

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)?

I would recommed to expand the snack cake division because it has a higher inestment turnover rate comparing with the other two.