2) Divisional Performance Analysis and Evaluation

The vice president of operations of Morrison IQ Company is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows:

Â	Business Division		Consumer Division
Sales	$ 2,340,000	Â	$ 2,500,000	Â
Cost of goods sold	1,030,000	Â	1,175,000	Â
Operating expenses	935,600	Â	825,000	Â
Invested assets	1,800,000	Â	2,500,000	Â

Required:

  Hide     1. Prepare condensed divisional income statements for the year ended December 31, 2014, assuming that there were no service department charges. Morrison IQ Company Divisional Income Statements For the Year Ended December 31, 2014     Business Division   Consumer Division Sales   $ Correct 7 of Item 1   $ Correct 8 of Item 1 Cost of goods sold   Correct 10 of Item 1   Correct 11 of Item 1 Gross profit   $ Correct 13 of Item 1   $ Correct 14 of Item 1 Operating expenses   Correct 16 of Item 1   Correct 17 of Item 1 Income from operations   $ Correct 19 of Item 1   $ Correct 20 of Item 1

2. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment for each division. If required, round your answers to one decimal place.

Â	Profit Margin	Investment Turnover	ROI
Business Division	%	Â	%
Consumer Division	%	Â	%

3. If management desires a minimum acceptable rate of return of 15%, determine the residual income for each division. If required, use the minus sign to indicate a negative income.

Â	Residual Income
Business Division	$
Consumer Division	$

4. On the basis of residual income, the SelectBusinessConsumerCorrect 9 of Item 2 Division is the more profitable of the two divisions. On the basis of income from operations, the SelectBusinessConsumerCorrect 10 of Item 2 Division is the more profitable of the two divisions.