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Effect of proposals on divisional performance A condensed income statement for the Eicctronics Division of Giholi Industries Inc. for the year ended December 31 , 20 io, is as follows: Assume that the Electronics Dlvision recelved no allocations from support departments. remain unchanged. Proposal 2: Reduce invested assets by discontinuling a product line. This action would eliminate sales of $180,000, reduce cost of poods sold by $119,550, and reduce operating expenses by $60,000. Assets of $112,500 woild be transferred to other divisions at no gain or loss. Proposal 3: Purchase new and more efficient machinery and thereby reduce the cost of goods sold by $189,000 atter considering the effects of depreciation expense on the new equipment, Sales would remain unchunged, and the old machinery, which has no remaining book value, would be scrapped at no gain or loss. The new machinery would increase invested assets by 3918,750 for the year. Required: 1. Using the Dupont formula for return on investment, determine the profit margin, investment turnovec, and return on investment for the Electranics Division for the past year, If required, round your answers to one decimal place. Electronies Division 2. Prepare condensed estimated income statements and compute the invested assets for each proposat. Gihbli Industries Inc--Electronics Division Estimated Income statements 3. Using the Dupont formula for return on investment, determine the pronit margin, lavestment furnover, and return on investment for each proposal. Round investment turnover and percentages to one decimal place. 3 more Check My Work uses remaning. 3. Using the DuPont formula for retum on investment, determine the pront margin, investment turnover, and retum on investment for each proposal, Round investment turnover and percentages to one decimal place. 4. Which of the three proposals would meet the required 20% return on investment? Proposal 1 Proposal 2 5. If the Electronics Division were in an industry where the protit margin could not be increased, how much would the investment tumover have to increase to meet the president's requlred 20% return on investment? Enter your increase in investment turnover answer as a percentage of current investment turnover Round interim calculations (including previously calculated) and final answer to one decimal place. % Effect of proposals on divisional performance A condensed income statement for the Electronics Division of Gihbli Industries inc. for the year ended December 31 , 20y9, is as follows: Assume that the Electronics Oivision received no allocations from support departments. The president of Gihbl industries inc. has indicated that the division's return on a $1,050,000 investment must be increased to at least 20% by the end of the next year operations are to continue. The division manager is considering the following three proposals: Proposal 1: Transfer equpment with a book value of $300,000 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would be less than the amount of depreciation expense on the old equipment by $31,400. This decrease in expense would be inciuded as part of the cost of goods sold. Sales would remain unchanged. Proposal 2: Reduce invested assets by discontinuing a product line. This action would eliminate sales of 5180,000 , reduce cost of goods sold by $119,550, and reduce operating expenses by $60,000. Assets of $112,500 would be transferred to other divisions at no gain or loss. Proposal 3: Purchase new and more effcient machinery and thereby reduce the cost of goods sold by $189,000 after considering the effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old machinery, which has no remaining book value, would be serapped at no gain or loss, The new machinery would increase invested assets by $918,750 for the year. Required: 1. Using the Dupont formula for retum on investment, determine the profit margin, imvestment turnover, and return on investment for the Electronics Division for the past year. If required, round your answers to one decimal place
