can someone help A divisional income statement for the Snack Cake Division of Wh
ID: 2372108 • Letter: C
Question
can someone help
A divisional income statement for the Snack Cake Division of Wholesome Fresh Bakery, Inc. follows: The average invested assets of the Snack Cake Division total $600,000. The Snack Cake Divisiot receives no allocation of service charges or corporate fixed costs. The president of Wholesome Fresh Bakery, Inc. indicated that the division's ROI must be increased to at least 20% by the er of next year or the division will be sold. The division manager is considering the following thre proposals: Proposal 1: Transfer equipment with a book value of $120,000 to other divisions at no gain or loss. Similar equipment would be leased. The annual lease payments would add $18,000 to co of goods sold. Average invested assets would be reduced by $120,000. Proposal 2: Purchase new and more efficient machinery. This would reduce cost of goods sold by $48,000. Sales and operating expenses would remain unchanged. The old machinery would be scrapped at no gain or loss. Average invested assets would increase by $150,000. Proposal 3: Reduce average invested assets by discontinuing a product line. This would eliminate sales of $180,000. Cost of goods sold would be reduced by $133,200, and operating expenses would decrease by $42,000. Assets of $300,000 would be transferred to other divisions at no gain or loss. The transfer of these assets would reduce average invested assets by $300,000. Required: Compute the return on investment for the current year. Prepare forecasted income statements and compute average invested assets for each proposal. Each proposal is independent of the other two proposals. Compute the return on investment for each proposal. Which of the three proposals meets the 20% ROI requirement?Explanation / Answer
Actual Proposal 1 Proposal 2 Proposal 3
This is how to get the * Numbers for each account:
Proposal 1
*COGS: (360,000+18,000)=378,000
*Average Assets: (600,000-120,000)=480,000
Proposal 2
*COGS: (360,000-48,000)= 312,000
*Average Assets: (600,000+150,000)=750,000
Proposal 3
*Sales: (600,000-180,000)=420,000
*COGS: (360,000-133,200)= 226,800
*Operating exp:(168,000-42,000)=126,000
*Average Assets: (600,000-300,000)= 300,000
REQUIREMENTS
1. Net income/average assets: 72,000/600,000= 12%
2. proposal 1: (600,000-120,000)= 480,000
proposal 2: (600,000+150,000)= 750,000
proposal 3: (600,000-300,000)= 300,000
3. net income/average asstes
proposal 1: 54,000/600,000= 12%
proposal 2: 120,000/480,000= 11.25%
proposal 3: 67,200/ 300,000= 22.4%
3. Proposal 3 has a ROI of 22.4%, whch means that it meets the 20% ROI proposal.
sales 600,000 600,000 600,000 420,000* cost of goods sold 360,000 378,000* 312,000* 226,800* Gross Profit 240,000 222,000 288,000* 193,200 operating expenses 168,000 168,000 168,000 126,000* Average assets 600,000 480,000* 750,000* 300,000* Return on investments 12% 11.25% 16% 22.4%Related Questions
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