Accounting 26th Edition by Carl Warren ,Jim Reeve ,Jonathan Duchac

Exercise 11

Divisional income statements and rate of return on investment analysis
The Crunchy Granola Company is a diversified food company that specializes in all natural foods. The company has three operating divisions organized as investment centers. Condensed data taken from the records of the three division for the year ended June 30, 2016, are as follows:

The management of The Crunchy Granola Company is evaluating each division as a basis for planning a future expansion of operations.
Instructions
1. Prepare condensed divisional income statements for the three divisions, assuming that there were no service department charges.
2. Using the DuPont formula for rate of return on investment, compute the profit margin, investment turnover, and rate of return on investment for each division.
3. 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.