. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the Electronics Division for the past year. Round your answers to one decimal place. Electronics Division Profit margin fill in the blank d8ab81fc7fb203a_1% Investment turnover fill in the blank d8ab81fc7fb203a_2 ROI fill in the blank d8ab81fc7fb203a_3%
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:
1. Using the DuPont formula for
| Electronics Division | ||
| Profit margin | fill in the blank d8ab81fc7fb203a_1% | |
| Investment turnover | fill in the blank d8ab81fc7fb203a_2 | |
| ROI | fill in the blank d8ab81fc7fb203a_3% |
2. Prepare condensed estimated income statements and compute the invested assets for each proposal.
| Gihbli Industries Inc.—Electronics Division | |||
| Estimated Income Statements | |||
| For the Year Ended December 31 | |||
| Proposal 1 | Proposal 2 | Proposal 3 | |
| Sales | $fill in the blank d51d53081fb0015_1 | $fill in the blank d51d53081fb0015_2 | $fill in the blank d51d53081fb0015_3 |
| Cost of goods sold | fill in the blank d51d53081fb0015_4 | fill in the blank d51d53081fb0015_5 | fill in the blank d51d53081fb0015_6 |
| Gross profit | $fill in the blank d51d53081fb0015_7 | $fill in the blank d51d53081fb0015_8 | $fill in the blank d51d53081fb0015_9 |
| Operating expenses | fill in the blank d51d53081fb0015_10 | fill in the blank d51d53081fb0015_11 | fill in the blank d51d53081fb0015_12 |
| Income from operations | $fill in the blank d51d53081fb0015_13 | $fill in the blank d51d53081fb0015_14 | $fill in the blank d51d53081fb0015_15 |
| Invested assets | $fill in the blank d51d53081fb0015_16 | $fill in the blank d51d53081fb0015_17 | $fill in the blank d51d53081fb0015_18 |
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 | fill in the blank 8016a6014037ff8_1% | fill in the blank 8016a6014037ff8_2 | fill in the blank 8016a6014037ff8_3% |
| Proposal 2 | fill in the blank 8016a6014037ff8_4% | fill 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 8016a6014037ff8_13%
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