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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Divisional performance analysis and evaluation

The vice president of operations of Moab Bike Company is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year ending October 31, 20Y9, for each division are as follows

Instructions

Using the DuPont formula, determine the profit margin, investment turnover, and return on investment for each division.

To determine

Concept Introduction:

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

To Calculate:

The Profit Margin, Investment Turnover, and Return on investment for each division using the DuPont Formula

Explanation

The Profit Margin, Investment Turnover, and Return on investment for each division using the DuPont Formula are calculated as follows:

    DuPont Analysis
    Touring Bike Division Trail Bike Division
    Operating Income (A) $ 105,000 $ 432,000
    Sales (B) $ 1,500,000 $ 5,400,000
    Profit Margin (C) = A/B = 7...

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