A condensed income statement for the commercial division of Maxell Manufacturing Inc. for the year ended December 31 , 20Y9
o A condensed income statement for the Commercial Division of Masel Manufacturing Inc. for the year ended December 31, 20Ys, is as follows 3,900,000.00 Sales 690,0000 Cost of goods sold 1210,000.00 Gross prof 820,00000 Operating experes 390,000 00 Income from operations 53,000,00000 division's reum on a $3.000.000 invesiment mus be noeased to at least 17.00% by the end of Assume that the Commercial Division received no charges thom service departments The president of the next yeur toperations Mall Mandacturing has indicaed that the are to continue. The division manager is considering the following three proposal depreciation expense on the old equipment by $115,000 anceed the amount o Proposal 1:Tranater equipment with a book value of $324 500 to other divisions at no pain or loss and ease This increase in expense would be included as part of the cost of goods sold. Sales wouls semain unchanged simlar equipment The annual lease payments wouid e cost of goods sold ty $556,000 aher considering the effects of depreciation expense on The new equipment woue Proposal 2 Punchase new and more efficient machining equpment and theeby reduce the oid equpment, which has no remaining book vae, would be sorapsed at no gain or loss T increase iveed Next e operations are to continue. The division manager is conaidering the following Pree proposals the next year Proposal 1:Transter equipment with a book value of $324,500 to other dvisions at no gain or loss and lase milar equipment The annual lease payments wouid exceed the amount of depreciation exspense on the old equipment by $111,000 This increase in expense would be included as part of the cost of goods sold. Sales wouid remain unchangecd equipment Sales would remain unchanged and the Proposal 2: Purchase new and more efficient machining equipment and thereby reduce the ost of goods sold by $555,000 aher considering the efects of depreciation expense on the new The new equp ere woas noreaser vested assets by an adaona sms000 sore | rere, which has noremaringboa wake-mxld be scrapped at no gan or los. oldeq. Proposal 3: Reduoe invested assets by discontinuing a product line. This action transherred to other divisions at no gain or loss Required: Commercial Division for the past year required, ound your anwers to one decimal plao hnvested ssels Nor each proposal 2 Prepare condensed emaled inome statements and compute equired 17.00%reum on invetmane? Check al mat aply margn could not be increased, how much uoadPmmesment tanover have Drision were in an rotary where pr your increase in mesanent t move, ar-asa Y7.00% renum on swestment? Ei o increase to meet the presiden's required round your intermediale and inal anwes to two decialplaces oument investment sumover i reuine, r Income S Final Questions and netum on investment for each proposalrequired, ound your inermediate and inal answers to 2 Prepare condensed estimated income statements and compuite the invested assets for each proposal. wo decimal places. Investment Turnover Profit Margin Proposal Maxell Manufacturing Inc-Commercial Division Proposal 2 Estimated Income Satements Proposal 3 For the Year Ended December 31, 20v9 Proposal Proposal 2 Proposal which of the three proposals would meet the reamed 1700% retum on investment? Ceck all hat $5.900,000 00 3900,000.00 Sales apply Cest of goods sold Gross profit Proposal 3 Operating expenses D Proposal 2 Income from operations Proposal 1 Invested assets 5 it the Commercial Division were in an industry where the proft margin oould not be increaset how nvestmene? Enter your inorease in investment umover anewer as a percentage of curent investment umover if required, ound your intermedate and Sinal answers to hse decimal places $3,900,000.00 1 Sales 2 Cost of goods sold 2,690,000.00 3 Gross profit $1,210,000.00 Operating expenses 820,000.00 $390,000.00 Income from operations 5 6 Invested assets $3,000,000.00 Assume that the Commercial Division received no charges from service departments. The president of Maxel Manufacturing has indicated that the division's return on a $3,000,000 investment must be increased to at least 17.00% by the end of the next year if operations are to continue. The division manager is considering the following three proposals: Proposal 1: Transfer equipment with a book value of $324,500 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would exceed the amount of depreciation expense on the old equipment by $111,000. This increase in expense would be included as part of the cost of goods sold. Sales would remain unchanged. Proposal 2: Purchase new and more efficient machining equipment and thereby reduce the cost of goods sold by $555,000 after considering the effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old equipment, which has no remaining book value, would be scrapped at no gain or loss. The new equipment would increase invested assets by an additional $1,819,000 for the year Proposal 3: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $586,000, reduce cost of goods sold by $408,700, and reduce operating expenses by $180,000. Assets of $1,358,000 would be transferred to other divisions at no gain or loss
