PR 24-5B The vice president of operations of Six Layer Computers Inc. 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:
Network Equipment Division Personal Computing Division
Sales $1,400,000 $1,120,000
Cost of goods sold 845,000 690,000
Operating expenses 345,000 206,000
Invested assets 1,000,000 1,400,000
1. Prepare condensed divisional income statements for the year ended
December 31, 2010, assuming that there were no service department
charges. Enter all amounts as positive numbers.
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. Round investment turnover to one decimal
place. Do not enter in the percent sign.
3. If management's minimum acceptable rate of return is 14%, determine
the residual income for each division. If required, use the minus sign
to indicate a negative.
4. Discuss the evaluation of the two divisions, using the performance
measures determined in parts (1), (2), and (3). The input in the box
below will not be graded, but may be reviewed and considered by your
instructor.
Check: 2. Network Equipment Division ROI, 21%
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