Divisional Performance Analysis and Evaluation

The vice president of operations of Pavone 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 DivisionConsumer DivisionSales$2,500,000 $2,550,000 Cost of goods sold1,320,000 1,350,000 Operating expenses930,000 843,000 Invested assets1,250,000 2,125,000

Required:

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

Business DivisionConsumer DivisionSales$fill in the blank 924375093002fdd_1$fill in the blank 924375093002fdd_2Cost of goods soldfill in the blank 924375093002fdd_3fill in the blank 924375093002fdd_4Gross profit$fill in the blank 924375093002fdd_5$fill in the blank 924375093002fdd_6Operating expensesfill in the blank 924375093002fdd_7fill in the blank 924375093002fdd_8Income from operations$fill in the blank 924375093002fdd_9$fill in the blank 924375093002fdd_10

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

DivisionProfit MarginInvestment TurnoverROIBusiness Divisionfill in the blank db9927ffdf84ff8_1%fill in the blank db9927ffdf84ff8_2fill in the blank db9927ffdf84ff8_3%Consumer Divisionfill in the blank db9927ffdf84ff8_4%fill in the blank db9927ffdf84ff8_5fill in the blank db9927ffdf84ff8_6%

3. If management wants a minimum acceptable return of 17%, determine the residual income for each division. If required, use the minus sign to indicate a negative income.

DivisionResidual IncomeBusiness Division$fill in the blank db9927ffdf84ff8_7Consumer Division$fill in the blank db9927ffdf84ff8_8

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