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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Divisional income statements and return on investment analysis
High Country Foods Inc. 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. 20Y7. are as follows

The management of High Country Foods Inc. is evaluating each division as a basis for planning a future expansion of operations.
Instructions

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.

To determine

Concept Introduction:

DuPont analysis is an Analysis to examine the Return of Equity (ROE) of a company by various means which includes Profit margin, Asset turnover and financial leverage.

Divisional income statement shows the Profit or Losses which the operating division generates during the accounting year after deducting cost of goods sold and operating expenses.

Recommendation made for expansion of division

Explanation

Statement showing calculation of Profit Margin, Investment Turnover and Return on Investment

    ParticularBreakfast DivisionBakery DivisionFrozen foods Division
    Net Income$ 2,376,000$ 1,295,000$ 1,920,000
    Revenue$ 39,600,000$ 18,500,000$ 24,000,000
    Profit margin = Net Income/ Revenue6%7%8%
    Revenue$ 39,600,000$ 18,500,000$ 24,000,000
    Total assets $ 22,000,000$ 9,250,000$ 16,000,000
    Assets turnover = Revenue/ Total assets1.821.5
    Return on Investment = Profit margin*Assets Turnover6% * 1...

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