The vice president of operations of Recycling Industries 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	$2,200,000	$2,490,000
Cost of goods sold	1,260,000	1,335,000
Operating expenses	698,000	831,300
Invested assets	1,100,000	2,490,000

1. Prepare condensed divisional income statements for the year ended December 31, 20Y8, assuming that there were no service department charges.

Recycling Industries

Divisional Income Statements

For the Year Ended December 31, 20Y8

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 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.

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

3. If management desires a minimum acceptable return on investment of 18.00%, determine the residual income for each division. Use the minus sign to indicate a negative income. Round your answers to the nearest dollar.

	Residual Income
Business Division	$
Consumer Division	$

4. Discuss the evaluation of the two divisions, using the performance measures determined in parts (1), (2), and (3).

On the basis of income from operations, the Division is more profitable. However, income from operations does not consider the amount of invested assets in each division. On the basis of the rate of return on investment, the Division is more profitable. Even though the Division has a higher profit margin, the Division has a higher investment turnover, which generates the higher rate of return on investment. On the basis of residual income, the Division is the more profitable of the two divisions.