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Car Deals Inc. has two divisions: New Cars and Used Cars. The following segmented financial information is for the most recent fiscal year: New Cars

  1. Car Deals Inc. has two divisions: New Cars and Used Cars. The following segmented financial information is for the most recent fiscal year:

New Cars

Division

Used Cars

Division

Sales

$9,000,000

$18,000,000

Cost of goods sold

3,300,000

8,700,000

Allocated overhead

1,050,000

2,550,000

Selling and administrative expenses

585,000

630,000

The New Cars division had average operating assets totaling $17,400,000 for the year, and the Used Cars division had average operating assets of $22,800,000. Assume the cost of capital rate is 15 percent. (15 Points)

Required:

a. Prepare a segmented income statement ignoring income taxes, including the profit margin ratio for each division at the bottom of the segmented operating income statement.

b. Calculate return on investment (ROI) for each division.

c. Calculate residual income for each division.

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