Question

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 divisions for the year ended June 30, 20Y7, are as follows:

	Cereal Division	Snack Cake Division	Retail Bakeries Division
Sales	$25,000,000	$8,120,000	$9,750,000
Cost of goods sold	16,620,000	5,555,000	6,720,000
Operating expenses	7,130,000	1,915,400	2,542,500
Invested assets	7,142,857	2,030,000	3,250,000

The management of The Crunchy Granola Company is evaluating each division as a basis for planning a future expansion of operations.

	Required:
1.	Prepare condensed divisional income statements for the three divisions, assuming that there were no service department charges.
2.	Using the DuPont formula for return on investment, compute the profit margin, investment turnover, and return on investment for each division. If required, round your final answers to one decimal place.

1. Prepare condensed divisional income statements for the three divisions, assuming that there were no service department charges.

The Crunchy Granola Company

Divisional Income Statements

For the Year Ended June 30, 20Y7

1		Cereal Division	Snack Cake Division	Retail Bakeries Division
2	Sales
3	Cost of goods sold
4	Gross profit
5	Operating expenses
6	Income from operations

For each division, subtract operating expenses from gross profit.

2. Using the DuPont formula for return on investment, compute the profit margin, investment turnover, and return on investment for each division. If required, round your final answers to one decimal place.

Division	Profit Margin	Investment Turnover	ROI
Cereal	%		%
Snack Cake	%		%
Retail Bakeries	%		%

Answer 1

1. Prepare condensed divisional income statements for the three divisions, assuming that there were no service department charges.

The Crunchy Granola Company

Divisional Income Statements

For the Year Ended June 30, 20Y7

1		Cereal Division	Snack Cake Division	Retail Bakeries Division
2	Sales	25000000	8120000	9750000
3	Cost of goods sold	16620000	5555000	6720000
4	Gross profit	8380000	2565000	3030000
5	Operating expenses	7130000	1915400	2542500
6	Income from operation	1250000	649600	487500

2. Using the DuPont formula for return on investment, compute the profit margin, investment turnover, and return on investment for each division. If required, round your final answers to one decimal place.

Division	Profit Margin	Investment Turnover	ROI
Cereal	5%	3.5	17.5%
Snack Cake	8%	4	32%
Retail Bakeries	5%	3	15%