Effect of Proposals on Divisional Performance A condensed income statement for the Electronics Division of Gihbli Industries Inc. for the year ended December 31 is as follows: Sales $1,870,000 Cost of goods sold 1,472,700 Gross profit $ 397,300 Operating expenses 229,000 Income from operations $ 168,300 Invested assets $1,700,000 Assume that the Electronics Division received no cost allocations from service departments. The president of Gihbli Industries Inc. has indicated that the division’s return on a $1,700,000 investment must be increased to at least 11.7% by the end of the next year if operations are to continue. The division manager is considering the following three proposals: Proposal 1: Transfer equipment with a book value of $340,000 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would be less than the amount of depreciation expense on the old equipment by $61,200. This decrease in expense would be included as part of the cost of goods sold. Sales would remain unchanged. Proposal 2: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $361,300, reduce cost of goods sold by $241,400, and reduce operating expenses by $106,300. Assets of $860,700 would be transferred to other divisions at no gain or loss. Proposal 3: Purchase new and more efficient machinery and thereby reduce the cost of goods sold by $224,400 after considering the effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old machinery, which has no remaining book value, would be scrapped at no gain or loss. The new machinery would increase invested assets by $850,000 for the year. Required: 1. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the Electronics Division for the past year. Round your answers to one decimal place. Electronics Division Profit margin fill in the blank dbcd50fd903c05f_1% Investment turnover fill in the blank dbcd50fd903c05f_2 ROI fill in the blank dbcd50fd903c05f_3% 2. Prepare condensed estimated income statements and compute the invested assets for each proposal. Gihbli Industries Inc.—Electronics DivisionEstimated Income StatementsFor the Year Ended December 31 Proposal 1 Proposal 2 Proposal 3 Sales $fill in the blank a262aaf9f02a03b_1 $fill in the blank a262aaf9f02a03b_2 $fill in the blank a262aaf9f02a03b_3 Cost of goods sold fill in the blank a262aaf9f02a03b_4 fill in the blank a262aaf9f02a03b_5 fill in the blank a262aaf9f02a03b_6 Gross profit $fill in the blank a262aaf9f02a03b_7 $fill in the blank a262aaf9f02a03b_8 $fill in the blank a262aaf9f02a03b_9 Operating expenses fill in the blank a262aaf9f02a03b_10 fill in the blank a262aaf9f02a03b_11 fill in the blank a262aaf9f02a03b_12 Income from operations $fill in the blank a262aaf9f02a03b_13 $fill in the blank a262aaf9f02a03b_14 $fill in the blank a262aaf9f02a03b_15 Invested assets $fill in the blank a262aaf9f02a03b_16 $fill in the blank a262aaf9f02a03b_17 $fill in the blank a262aaf9f02a03b_18 3. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. Round interim calculations (including previously calculated) and final answer to one decimal place. Proposal Profit Margin Investment Turnover ROI Proposal 1 fill in the blank b10a5d070051f99_1% fill in the blank b10a5d070051f99_2 fill in the blank b10a5d070051f99_3% Proposal 2 fill in the blank b10a5d070051f99_4% fill in the blank b10a5d070051f99_5 fill in the blank b10a5d070051f99_6% Proposal 3 fill in the blank b10a5d070051f99_7% fill in the blank b10a5d070051f99_8 fill in the blank b10a5d070051f99_9% 4. Which of the three proposals would meet the required 11.7% return on investment. Proposal 1 Proposal 2 Proposal 3 5. If the Electronics Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet the president's required 11.7% return on investment? Enter your increase in investment turnover answer as a percentage of current investment turnover. Round interim calculations (including previously calculated) and final answer to one decimal place. fill in the blank b10a5d070051f99_13%

Effect of Proposals on Divisional Performance A condensed income statement for the Electronics Division of Gihbli Industries Inc. for the year ended December 31 is as follows: Sales $1,870,000 Cost of goods sold 1,472,700 Gross profit $ 397,300 Operating expenses 229,000 Income from operations $ 168,300 Invested assets $1,700,000 Assume that the Electronics Division received no cost allocations from service departments. The president of Gihbli Industries Inc. has indicated that the division’s return on a $1,700,000 investment must be increased to at least 11.7% by the end of the next year if operations are to continue. The division manager is considering the following three proposals: Proposal 1: Transfer equipment with a book value of $340,000 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would be less than the amount of depreciation expense on the old equipment by $61,200. This decrease in expense would be included as part of the cost of goods sold. Sales would remain unchanged. Proposal 2: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $361,300, reduce cost of goods sold by $241,400, and reduce operating expenses by $106,300. Assets of $860,700 would be transferred to other divisions at no gain or loss. Proposal 3: Purchase new and more efficient machinery and thereby reduce the cost of goods sold by $224,400 after considering the effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old machinery, which has no remaining book value, would be scrapped at no gain or loss. The new machinery would increase invested assets by $850,000 for the year. Required: 1. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the Electronics Division for the past year. Round your answers to one decimal place. Electronics Division Profit margin fill in the blank dbcd50fd903c05f_1% Investment turnover fill in the blank dbcd50fd903c05f_2 ROI fill in the blank dbcd50fd903c05f_3% 2. Prepare condensed estimated income statements and compute the invested assets for each proposal. Gihbli Industries Inc.—Electronics DivisionEstimated Income StatementsFor the Year Ended December 31 Proposal 1 Proposal 2 Proposal 3 Sales $fill in the blank a262aaf9f02a03b_1 $fill in the blank a262aaf9f02a03b_2 $fill in the blank a262aaf9f02a03b_3 Cost of goods sold fill in the blank a262aaf9f02a03b_4 fill in the blank a262aaf9f02a03b_5 fill in the blank a262aaf9f02a03b_6 Gross profit $fill in the blank a262aaf9f02a03b_7 $fill in the blank a262aaf9f02a03b_8 $fill in the blank a262aaf9f02a03b_9 Operating expenses fill in the blank a262aaf9f02a03b_10 fill in the blank a262aaf9f02a03b_11 fill in the blank a262aaf9f02a03b_12 Income from operations $fill in the blank a262aaf9f02a03b_13 $fill in the blank a262aaf9f02a03b_14 $fill in the blank a262aaf9f02a03b_15 Invested assets $fill in the blank a262aaf9f02a03b_16 $fill in the blank a262aaf9f02a03b_17 $fill in the blank a262aaf9f02a03b_18 3. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. Round interim calculations (including previously calculated) and final answer to one decimal place. Proposal Profit Margin Investment Turnover ROI Proposal 1 fill in the blank b10a5d070051f99_1% fill in the blank b10a5d070051f99_2 fill in the blank b10a5d070051f99_3% Proposal 2 fill in the blank b10a5d070051f99_4% fill in the blank b10a5d070051f99_5 fill in the blank b10a5d070051f99_6% Proposal 3 fill in the blank b10a5d070051f99_7% fill in the blank b10a5d070051f99_8 fill in the blank b10a5d070051f99_9% 4. Which of the three proposals would meet the required 11.7% return on investment. Proposal 1 Proposal 2 Proposal 3 5. If the Electronics Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet the president's required 11.7% return on investment? Enter your increase in investment turnover answer as a percentage of current investment turnover. Round interim calculations (including previously calculated) and final answer to one decimal place. fill in the blank b10a5d070051f99_13%

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter14: Decentralized Operations

Section: Chapter Questions

Problem 14.4.4P: Effect of proposals on divisional performance A condensed income statement for the Jet Ski Division...

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Effect of Proposals on Divisional Performance

A condensed income statement for the Electronics Division of Gihbli Industries Inc. for the year ended December 31 is as follows:

Sales	$1,870,000
Cost of goods sold	1,472,700
Gross profit	$ 397,300
Operating expenses	229,000
Income from operations	$ 168,300
Invested assets	$1,700,000

Assume that the Electronics Division received no cost allocations from service departments.

The president of Gihbli Industries Inc. has indicated that the division’s return on a $1,700,000 investment must be increased to at least 11.7% by the end of the next year if operations are to continue. The division manager is considering the following three proposals:

Proposal 1: Transfer equipment with a book value of $340,000 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would be less than the amount of depreciation expense on the old equipment by $61,200. This decrease in expense would be included as part of the cost of goods sold. Sales would remain unchanged.

Proposal 2: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $361,300, reduce cost of goods sold by $241,400, and reduce operating expenses by $106,300. Assets of $860,700 would be transferred to other divisions at no gain or loss.

Proposal 3: Purchase new and more efficient machinery and thereby reduce the cost of goods sold by $224,400 after considering the effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old machinery, which has no remaining book value, would be scrapped at no gain or loss. The new machinery would increase invested assets by $850,000 for the year.

Required:

1. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the Electronics Division for the past year. Round your answers to one decimal place.

	Electronics Division
Profit margin	fill in the blank dbcd50fd903c05f_1%
Investment turnover	fill in the blank dbcd50fd903c05f_2
ROI	fill in the blank dbcd50fd903c05f_3%

2. Prepare condensed estimated income statements and compute the invested assets for each proposal.

Gihbli Industries Inc.—Electronics DivisionEstimated Income StatementsFor the Year Ended December 31

	Proposal 1	Proposal 2	Proposal 3
Sales	$fill in the blank a262aaf9f02a03b_1	$fill in the blank a262aaf9f02a03b_2	$fill in the blank a262aaf9f02a03b_3
Cost of goods sold	fill in the blank a262aaf9f02a03b_4	fill in the blank a262aaf9f02a03b_5	fill in the blank a262aaf9f02a03b_6
Gross profit	$fill in the blank a262aaf9f02a03b_7	$fill in the blank a262aaf9f02a03b_8	$fill in the blank a262aaf9f02a03b_9
Operating expenses	fill in the blank a262aaf9f02a03b_10	fill in the blank a262aaf9f02a03b_11	fill in the blank a262aaf9f02a03b_12
Income from operations	$fill in the blank a262aaf9f02a03b_13	$fill in the blank a262aaf9f02a03b_14	$fill in the blank a262aaf9f02a03b_15
Invested assets	$fill in the blank a262aaf9f02a03b_16	$fill in the blank a262aaf9f02a03b_17	$fill in the blank a262aaf9f02a03b_18

3. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. Round interim calculations (including previously calculated) and final answer to one decimal place.

Proposal	Profit Margin	Investment Turnover	ROI
Proposal 1	fill in the blank b10a5d070051f99_1%	fill in the blank b10a5d070051f99_2	fill in the blank b10a5d070051f99_3%
Proposal 2	fill in the blank b10a5d070051f99_4%	fill in the blank b10a5d070051f99_5	fill in the blank b10a5d070051f99_6%
Proposal 3	fill in the blank b10a5d070051f99_7%	fill in the blank b10a5d070051f99_8	fill in the blank b10a5d070051f99_9%

4. Which of the three proposals would meet the required 11.7% return on investment.

Proposal 1
Proposal 2
Proposal 3

5. If the Electronics Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet the president's required 11.7% return on investment? Enter your increase in investment turnover answer as a percentage of current investment turnover. Round interim calculations (including previously calculated) and final answer to one decimal place.
fill in the blank b10a5d070051f99_13%

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