1) Divisional Income Statements and Rate of Return on Investment Analysis

Sunshine Food Company is a diversified food company with three operating divisions organized as investment centers. Condensed data taken from the records of the three divisions for the year ended June 30, 2014, are as follows:

	Cereal Division		Snack Cake Division		Retail Bakeries Division
Sales	$ 1,760,000		$ 1,900,000		$1,690,000
Cost of goods sold	1,070,000		1,180,000		1,000,000
Operating expenses	338,000		302,000		216,800
Invested assets	2,200,000		1,900,000		1,300,000

The management of Sunshine Food Company is evaluating each division as a basis for planning a future expansion of operations.

Required:

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1. Prepare condensed divisional income statements for the three divisions, assuming that there were no service department charges.

Sunshine Food Company
Divisional Income Statements
For the Year Ended June 30, 2014
		Cereal Division		Snack Cake Division		Retail Bakeries Division
Sales		$ Correct 8 of Item 1		$ Correct 9 of Item 1		$ Correct 10 of Item 1
Cost of goods sold		Correct 12 of Item 1		Correct 13 of Item 1		Correct 14 of Item 1
Gross Profit		$ Correct 16 of Item 1		$ Correct 17 of Item 1		$ Correct 18 of Item 1
Operating expenses		Correct 20 of Item 1		Correct 21 of Item 1		Correct 22 of Item 1
Income from operations		$ Correct 24 of Item 1		$ Correct 25 of Item 1		$ Correct 26 of Item 1

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

	Profit Margin	Investment Turnover	ROI
Cereal Division	%		%
Snack Cake Division	%		%
Retail Bakeries Division	%		%

3. When faced with limited funds for expansion, management should consider an expansion of the SelectCerealSnack CakeRetail BakeriesCorrect 10 of Item 2 Division first.