The Crunchy Granola Company is a diversified food company that specializes in al
ID: 2406334 • Letter: T
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:
The management of The Crunchy Granola Company is evaluating each division as a basis for planning a future expansion of operations.
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
2. Using the DuPont formula for return on investment, compute the profit margin, investment turnover, and rate of return on investment for each division. If required, round your final answers to one decimal place.
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)?
Retail Bakeries
Cereal
Snack Cake
Cereal Division Snack Cake Division Retail Bakeries Division Sales $25,000,000 $8,000,000 $9,750,000 Cost of goods sold 16,670,000 5,575,000 6,795,000 Operating expenses 7,330,000 1,945,000 2,272,500 Invested assets 10,000,000 4,000,000 6,500,000Explanation / Answer
Solution 1:
Solution 2:
Solution 3:
As ROI for snack cake division is highest therefore available funds should be utilized for expansion of snack cake division.
Dviisional Income Statement - Crunchy Granola Company Particulars Cereal Division Snack Cake division Retail Bakeries Division Sales $25,000,000.00 $8,000,000.00 $9,750,000.00 Cost of goods sold $16,670,000.00 $5,575,000.00 $6,795,000.00 Gross Profit $8,330,000.00 $2,425,000.00 $2,955,000.00 Operating Expenses $7,330,000.00 $1,945,000.00 $2,272,500.00 Net Operating Income $1,000,000.00 $480,000.00 $682,500.00Related Questions
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