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 $2,760,000 Cost of goods sold 1,847,600 Gross profit $ 912,400 Operating expenses 526,000 Income from operations $ 386,400 Invested assets $2,300,000 Assume that the Electronics Division received no charges from service departments. The president of Gihbli Industries Inc. has indicated that the division’s return on a $2,300,000 investment must be increased to at least 19.6% 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 $460,000 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 $82,800. 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 $488,800, reduce cost of goods sold by $326,600, and reduce operating expenses by $143,800. Assets of $1,164,500 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 $303,600 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 $1,150,000 for the year. Required: Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. Round your answers to one decimal place. Proposal Profit Margin Investment Turnover ROI Proposal 1 fill in the blank 8016a6014037ff8_2 fill in the blank 8016a6014037ff8_3% Proposal 2 % ill in the blank 8016a6014037ff8_5 fill in the blank 8016a6014037ff8_6% Proposal 3 fill in the blank 8016a6014037ff8_7% fill in the blank 8016a6014037ff8_8 fill in the blank 8016a6014037ff8_9% 4. Which of the three proposals would meet the required 19.6% return on investment. Proposal 1 Proposal 2 Proposal 3 5. If the Golf 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 19.6% return on investment? Enter your increase in investment turnover answer as a percentage of current investment turnover. If required, round your answer to one decimal place. fill in the blank

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 $2,760,000 Cost of goods sold 1,847,600 Gross profit $ 912,400 Operating expenses 526,000 Income from operations $ 386,400 Invested assets $2,300,000 Assume that the Electronics Division received no charges from service departments. The president of Gihbli Industries Inc. has indicated that the division’s return on a $2,300,000 investment must be increased to at least 19.6% 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 $460,000 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 $82,800. 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 $488,800, reduce cost of goods sold by $326,600, and reduce operating expenses by $143,800. Assets of $1,164,500 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 $303,600 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 $1,150,000 for the year. Required: Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. Round your answers to one decimal place. Proposal Profit Margin Investment Turnover ROI Proposal 1 fill in the blank 8016a6014037ff8_2 fill in the blank 8016a6014037ff8_3% Proposal 2 % ill in the blank 8016a6014037ff8_5 fill in the blank 8016a6014037ff8_6% Proposal 3 fill in the blank 8016a6014037ff8_7% fill in the blank 8016a6014037ff8_8 fill in the blank 8016a6014037ff8_9% 4. Which of the three proposals would meet the required 19.6% return on investment. Proposal 1 Proposal 2 Proposal 3 5. If the Golf 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 19.6% return on investment? Enter your increase in investment turnover answer as a percentage of current investment turnover. If required, round your answer to one decimal place. fill in the blank

Corporate Financial Accounting

14th Edition

ISBN:9781305653535

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter14: Financial Statement Analysis

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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	$2,760,000
Cost of goods sold	1,847,600
Gross profit	$ 912,400
Operating expenses	526,000
Income from operations	$ 386,400
Invested assets	$2,300,000

Assume that the Electronics Division received no charges from service departments.

The president of Gihbli Industries Inc. has indicated that the division’s return on a $2,300,000 investment must be increased to at least 19.6% 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 $460,000 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 $82,800. 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 $488,800, reduce cost of goods sold by $326,600, and reduce operating expenses by $143,800. Assets of $1,164,500 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 $303,600 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 $1,150,000 for the year.

Required:

Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. Round your answers to one decimal place.

Proposal	Profit Margin	Investment Turnover	ROI
Proposal 1		fill in the blank 8016a6014037ff8_2	fill in the blank 8016a6014037ff8_3%
Proposal 2	%	ill in the blank 8016a6014037ff8_5	fill in the blank 8016a6014037ff8_6%
Proposal 3	fill in the blank 8016a6014037ff8_7%	fill in the blank 8016a6014037ff8_8	fill in the blank 8016a6014037ff8_9%

4. Which of the three proposals would meet the required 19.6% return on investment.

Proposal 1
Proposal 2
Proposal 3

5. If the Golf 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 19.6% return on investment? Enter your increase in investment turnover answer as a percentage of current investment turnover. If required, round your answer to one decimal place.
fill in the blank

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
$2,760,000
Cost of goods sold
1,847,600
Gross profit
$ 912,400
Operating expenses
526,000
Income from operations
$4
$ 386,400
Invested assets
$2,300,000
Assume that the Electronics Division received no charges from service departments.
The president of Gihbli Industries Inc. has indicated that the division's return on a $2,300,000 investment must be increased to at least 19.6% 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 $460,000 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 $82,800. 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 $488,800, reduce cost of goods sold by $326,600, and reduce operating expenses by $143,800. Assets of
$1,164,500 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 gooc
ring 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
iinery would increase invested assets by $1,150,000 for the year.
Required:
1. Using the DuPont formula for return on investment, determine the profit margin, investr
estment for the Electronics Division for the past year. Round your answers to one decimal
place.

Ended December 31
Proposal 1
Proposal 2
Proposal 3
Sales
Cost of goods sold
Gross profit
$1
$4
Operating expenses
Income from operations $
$
$
Invested assets
3. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. Round your answers to one decimal place.
Proposal
Profit Margin
Investment Turnover
ROI
Proposal 1
%
%
Proposal 2
%
%
Proposal 3
4. Which of the three proposals would meet the required 19.6% return on investment.
Proposal 1
Proposal 2
Proposal 3
5. If the Golf 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 19.6% return on investment?
Enter your increase in investment turnover answer as a percentage of current investment turnover. If required, round your answer to one decimal place.
%

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