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 $8,000,000 $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 6,500,000
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 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?