The vice president of operations of Pavone Company 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 DivisionConsumer DivisionSales$2,160,000$2,520,000Cost of goods sold1,270,0001,330,000Operating expenses652,400837,200Invested assets744,8282,100,000 Required:1.Prepare condensed divisional income statements for the year ended December 31, assuming that there were no service department charges.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 final answers to one decimal place.3.If management wants a minimum acceptable return of 17.00%, determine the residual income for each division. Use the minus sign to indicate a negative income. Round final answers to nearest whole dollar.

Solution:- Preparation of the condensed divisional income statements for the year ended December…

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Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 5PB: Divisional performance analysis and evaluation The vice president of operations of Free Ride Bike...

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The vice president of operations of Pavone Company 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	$2,160,000	$2,520,000
Cost of goods sold	1,270,000	1,330,000
Operating expenses	652,400	837,200
Invested assets	744,828	2,100,000

	Required:
1.	Prepare condensed divisional income statements for the year ended December 31, assuming that there were no service department charges.
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 final answers to one decimal place.
3.	If management wants a minimum acceptable return of 17.00%, determine the residual income for each division. Use the minus sign to indicate a negative income. Round final answers to nearest whole dollar.

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