Quinn Company has two divisions, Domestic and International. Invested assets and condensed income statement data for each division for the year ended December 31, 2014, are as follows:

Question

	Domestic Division	international Division
Revenues	$675,000	$480,000
Operating expenses	450,000	372,400
Service department charges	90,000	50,000
Invested assets	600,000	384,000

instructions
1. Prepare condensed income statements for the past year for each division.

2. Using the DuPont formula, determine the profit margin, investment turnover, and rate of return on investment for each division.

3. If management’s minimum acceptable rate of return is 10%, determine the residual income for each division.

Accepted Answer

1.

Quinn Company Divisional income Statements For the Year ended December 31, 2014
	Domestic Division	international Division
Revenues	$675,000	$480,000
Operating expenses	450,000	372,400
Income from operations before service department charges	$225,000	$107,600
Service department charges	90,000	50,000
Income from operations	[latex]\underline{\underline{\$ \ 135,000}}[/latex]	[latex]\underline{\underline{\$ \ 57,600}}[/latex]

2. Rate of Return on Investment = Profit Margin × Investment Turnover

Rate of Return on Investment = [latex]\frac{Income from Operations}{Sales} × \frac{Sales}{Invested Assets}[/latex]

Domestic Division: ROI = [latex]\frac{\$ 135,000}{\$ 675,000} imes \frac{\$ 675,000}{\$ 600,000}[/latex]

ROI = 20% × 1.125

ROI = 22.5%

International Division: ROI = [latex]\frac{\$ 57,600}{\$480,000} imes \frac{\$ 480,000}{\$ 384,000}[/latex]

ROI = 12% × 1.25

ROI = 15%

3. Domestic Division: $75,000 [$135,000 – (10% × $600,000)]

International Division: $19,200 [$57,600 – (10% × $384,000)]

Question 23.IP.1: Quinn Company has two divisions, Domestic and International....

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