The vice-president of operations of Holland Commercial Furniture Company is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows:

Instructions
1. Prepare condensed divisional income statements for the year ended July 31, 2006, assuming that there were no service department charges.
2. Using the DuPont formula for rate of return on investment, 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 15%, determine the residual income for each division.
4. Discuss the evaluation of the two divisions, using the performance measures determined in (1), (2), and(3).

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Office Division Hotel Division Sales Cost of goods sold Operating expenses Invested assets $1,200,000 650,000 250,000 1,000,000 $1,800,000 1,100,000 250,000 3,600,000