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 Division	Consumer Division
Sales	$2,350,000	$2,550,000
Cost of goods sold	1,260,000	1,345,000
Operating expenses	831,500	924,500
Invested assets	783,333	2,318,182

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

PAVONE COMPANY

Divisional Income Statements

For the Year Ended December 31, 2016

1		Business Division	Consumer Division
2	Sales
3	Cost of goods sold
4	Gross profit
5	Operating expenses
6	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 final answer to one decimal place.

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

3. If management desires a minimum acceptable rate of return of 18.50%, determine the residual income for each division. Use the minus sign to indicate a negative income.

	Residual Income
Business Division	$
Consumer Division	$