Please answer both parts to question 1.

1A. The Crunchy Granola Company is a diversified food company that specializes in all natural foods. The company has three operating divisions organized as investment centers. Condensed data taken from the records of the three divisions for the year ended June 30, 20Y7, are as follows:

	Cereal Division	Snack Cake Division	Retail Bakeries Division
Sales	$25,900,000	$8,260,000	$9,900,000
Cost of goods sold	16,600,000	5,575,000	6,720,000
Operating expenses	7,228,000	1,941,600	2,487,000
Invested assets	12,950,000	2,753,333	3,960,000

The management of The Crunchy Granola Company is evaluating each division as a basis for planning a future expansion of operations.

	Required:
1.	Prepare condensed divisional income statements for the three divisions, assuming that there were no service department charges.
2.	Using the DuPont formula for return on investment, compute the profit margin, investment turnover, and return on investment for each division. If required, round your final answers to one decimal place.
3.	If available funds permit the expansion of operations of only one division, which of the divisions would you recommend for expansion, based on parts (1) and (2)?

1B. Garcon Inc. manufactures electronic products, with two operating divisions, Consumer and Commercial. Condensed divisional income statements, which involve no intracompany transfers and which include a breakdown of expenses into variable and fixed components, are as follows:

Garcon Inc.

Divisional Income Statements

For the Year Ended December 31, 20Y2

1		Consumer Division	Commercial Division	Total
2	Sales:
3	14,400 units $144 per unit	$2,073,600.00		$2,073,600.00
4	21,600 units $275 per unit		$5,940,000.00	5,940,000.00
5	Total sales	$2,073,600.00	$5,940,000.00	$8,013,600.00
6	Expenses:
7	Variable:
8	14,400 units $104 per unit	$1,497,600.00		$1,497,600.00
9	21,600 units $193* per unit		$4,168,800.00	4,168,800.00
10	Fixed	200,000.00	520,000.00	720,000.00
11	Total expenses	$1,697,600.00	$4,688,800.00	$6,386,400.00
12	Income from operations	$376,000.00	$1,251,200.00	$1,627,200.00

*$150 of the $193 per unit represents materials costs, and the remaining $43 per unit represents other variable conversion expenses incurred within the Commercial Division.

The Consumer Division is presently producing 14,400 units out of a total capacity of 17,280 units. Materials used in producing the Commercial Divisions product are currently purchased from outside suppliers at a price of $150 per unit. The Consumer Division is able to produce the materials used by the Commercial Division. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses.

	Required:
1.	Would the market price of $150 per unit be an appropriate transfer price for Garcon Inc.? Explain.
2.	If the Commercial Division purchases 2,880 units from the Consumer Division, rather than externally, at a negotiated transfer price of $115 per unit, how much would the income from operations of each division and the total company income from operations increase?
3.	Prepare condensed divisional income statements for Garcon Inc. based on the data in Requirement 2.
4.	If a transfer price of $126 per unit is negotiated, how much would the income from operations of each division and the total company income from operations increase?
5a.	What is the range of possible negotiated transfer prices that would be acceptable for Garcon Inc.?
5b.	Assuming that the managers of the two divisions cannot agree on a transfer price, what price would you suggest as the transfer price?