Problem 1 Instructionsa. Using the DuPont formula for return on investment, determine the profit margin,investment turnover, and return on investment for the Commercial Division for the pastyear.b. Prepare condensed estimated income statements and compute the invested assets foreach proposal.c. Using the DuPont formula for return on investment, determine the profit margin,investment turnover, and return on investment for each proposal. (Round theinvestment turnover and return on investment to one decimal place.)e.d. Which of the three proposals would meet the required 21% return on investment?If the Commercial Division were in an industry where the profit margin could not beincreased, how much would the investment turnover have to increase to meet thepresident's required 21% return on investment? Problems1. A condensed income statement for the Commercial Division of McLean Manufacturing Inc. forthe year ended December 31, 2020, is as follows:CategorySalesCost of goods soldGross profitOperating expensesIncome from operationsInvested assetsDollar Amount$3,600,0002,450,0001,150,000600,000550,0002,500,000Assume that the Commercial Division received no charges from service departments. Thepresident of McLean Manufacturing has indicated that the division's return on a $2,500,000investment must be increased to at least 21% by the end of the next year if operations are tocontinue. The division manager is considering the following three proposals:Proposal 1: Transfer equipment with a book value of $312,500 to other divisions at no gain orloss and lease similar equipment. The annual lease payments would exceed the amount ofdepreciation expense on the old equipment by $105,000. This increase in expense would beincluded as part of the cost of goods sold. Sales would remain unchanged.Proposal 2: Purchase new and more efficient machining equipment and thereby reduce the costof goods sold by $560,000 after considering the effects of depreciation expense on the newequipment. Sales would remain unchanged, and the old equipment, which has no remainingbook value, would be scrapped at no gain or loss. The new equipment would increase investedassets by an additional $1,875,000 for the year.Proposal 3: Reduce invested assets by discontinuing a product line. This action would eliminatesales of $595,000, reduce cost of goods sold by $406,700, and reduce operating expenses by$175,000. Assets of $1,338,000 would be transferred to other divisions at no gain or loss.

Name: Problem 1 Instructionsa. Using the DuPont formula for return on inves
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Description: Problem 1 Instructionsa. Using the DuPont formula for return on investment, determine the profit margin,investment turnover, and return on investment for the Commercial Division for the pastyear.b. Prepare condensed estimated income statements and c

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1. A condensed income statement for the Commercial Division of McLean Manufacturing Inc. for the year ended December 31, 2020, is as follows: Category Sales Cost of goods sold Gross profit Operating expenses Income from operations Invested assets Dollar Amount $3,600,000 2,450,000 1,150,000 600,000 550,000 2,500,000

1. A condensed income statement for the Commercial Division of McLean Manufacturing Inc. for the year ended December 31, 2020, is as follows: Category Sales Cost of goods sold Gross profit Operating expenses Income from operations Invested assets Dollar Amount $3,600,000 2,450,000 1,150,000 600,000 550,000 2,500,000

FINANCIAL ACCOUNTING

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Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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