Effect of Proposals on Divisional Performance A condensed Income statement for the Commercial Division of Maxell Manufacturing Inc. for the year ended December 31 is as follows: Sales $3,500,000 Cost of goods sold 2,480,000 Gross profit $1,020,000 Operating expenses 600,000 Income from operations $420,000 Invested assets $2,500,000 Assume that the Commercial Division received no charges from service departments. The president of Maxell Manufacturing has indicated that the division's return on a k) $2,500,000 investment must be increased to at lebt 21% by the end of the next year it operations are to continue. The division manager las considering the following three proposals: Proposalti Transfer equipment with a book value of $312,500 to other divisions at no gain or loss and lease similar equipment. The annual tease payments would exceed the amount of depreciation expense on the old equipment by $105,000. This increase in expense would be included as part of the cost of goods solidSales would remen unchanged Proposal 2: Purchase new and more efficient machining equipment and thereby reduce the cost of goods sold by $560,000 after considering the effects of depreciation expense on the new equipment Sales would remain unchanged, and the old equipment, which has no remaining book valve, would be scrapped at no gain or loss. The new equipment would increase invested assets by an additional 61,875,000 for the year Proposal 3: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $595,000, reduce cost of goods sold by $406,700, and reduce operating expenses by $175,000. Assets of $1,338,000 would be transferred to other divisions at no gain or loss Required: 1. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the commercial Division for the past year. If required, round your answers to one decimal place. Commercial Division Profit margin Investment turnover ROI 96 2. Prepare condensed estimated income statements and compute the invested assets for each proposal Maxell Manufacturing Inc.-Commercial Division Estimated Income Statements For the Year Ended December 31 Proposal 1 Proposal 2 Proposal 3 Sales Cost of goods sold Gross profit Operating expenses Income from operations Invested assets Previous Next > Check My Work 3 more Check My Work uses remaining mallit SPACE Cuba Ascinment for Gradine 3. Using the DuPont formula for return on investment, determine the profit margin, Investment turnover, and return on investment for each proposal. Round investment turnover and percentages to one decimal place. Proposal Profit margin Investment turnover ROI Proposal 1 % % Proposal 2 % Proposal 3 % 4. Which of the three proposals would meet the required 21% return on investment? Proposal 1 Proposal 2 1 Proposal 3 5. If the Commercial Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet the president's required 21% return on investment Enter your increase in investment turnover answer as a percentage of current investment turnover. Do not round your Interim calculations. 96
