Response to the following problem:
The three divisions of Monstore Foods are Snack Goods, Cereal, and Frozen Foods. The divisions are structured as investment centers. The following responsibility reports were prepared for the three divisions for the prior year:
|
|
Snack Goods
|
Cereal
|
Frozen Foods
|
|
Revenues
|
$1,500,000
|
S 2,400,000
|
51,350,000
|
|
Operating expenses
|
684,600
|
1,179,000
|
483,000
|
|
Income from operations before service department charges
|
$ 815,400
|
$ 1,221,000
|
$ 867,000
|
|
Service department charges:
|
|
|
|
|
Promotion
|
$ 210,000
|
$ 415,000
|
$ 325,000
|
|
Legal
|
95,400
|
86,000
|
164,000
|
|
|
$ 305,400
|
$ 501,000
|
$ 489,000
|
|
Income from operations
|
$ 510,000
|
$ 720,000
|
$ 378,000
|
|
Invested assets
|
$2,500,000
|
S 4,800,000
|
$1,800,000
|
1. Which division is making the best use of invested assets and thus should be given priority for future capital investments?
2. Assuming that the minimum acceptable rate of return on new projects is 12%, would all investments that produce a return in excess of 12% be accepted by the divisions?
3. Can you identify opportunities for improving the company's financial performance?