Question

1. Divisional income statements and return on investment analysis

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                                      $28,000,000                        $8,300,000                           $10,050,000

Cost of goods sold            16,970,000                           5,875,000                             7,095,000

Operating expenses       7,630,000                             2,245,000                             2,572,500

Invested assets                 10,300,000                           4,300,000                             6,800,000

The management of The Crunchy Granola Company is evaluating each division as a basis for

planning a future expansion of operations.

Instructions

• Prepare condensed divisional income statements for the three divisions, if there were no support department allocations.
• Using the DuPont formula for return on investment, compute the profit margin, investment turnover, and return on investment for each division. Round percentages and the investment turnover to one decimal place.

Answer 1