ACCOUNTING
Warren, Reeve and Duchac
Financial Accounting
Managerial Accounting
Carl Warren, James M. Reeve, Jonathan E. Duchac
Chapter 24
PR 24-3A Sunshine Baking Company is a diversified food products company with three operating divisions organized as investment centers. Condensed data taken from the records of the three divisions for the year ended June 30,2010, are as follows:
Retail Snack Cake Bakeries Bread Division Division Division
Sales $ 8,100,000 $ 8,700,000 $7,800,000
Cost of goods sold 4,980,000 5,400,000 4,600,000
Operating expenses 1,662,000 1,995,000 1,484,000
Invested assets 10,800,000 10,875,000 6,000,000
The management of Sunshine Baking Company is evaluating each division as a basis for planning a future expansion of operations.
Instructions
1. Prepare condensed divisional income statements for the three divisions, assuming that there were no service department charges.
2. Using the DuPont formula for rate of return on investment, compute the profit margin, investment turnover, and rate of return on investment for each division.
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)? Explain.
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