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:

	Business Division		Consumer Division
Sales	$ 6,120,000		$ 6,440,000
Cost of goods sold	2,693,000		3,027,000
Operating expenses	2,386,600		2,447,000
Invested assets	5,100,000		4,600,000

Required:

1. Prepare condensed divisional income statements for the year ended December 31, 2016, assuming that there were no service department charges.

Morrison IQ Company
Divisional Income Statements
For the Year Ended December 31, 2016
	Business Division	Consumer Division
Sales	$	$
Cost of goods sold
Gross profit	$	$
Operating expenses
Income from operations	$	$

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.

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

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.

	Residual Income
Business Division	$
Consumer Division	$

4. On the basis of residual income, the Division is the more profitable of the two divisions. On the basis of income from operations, the Division is the more profitable of the two divisions.