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Segmented Net Income. Valdez Company has two divisionsAppliances and Tools. The following segmented financial information is for the most recent fiscal year ended December 31.

	Appliances Division	Tools Division
Sales	$3,000,000	$1,000,000
Cost of goods sold	1,600,000	430,000
Allocated overhead	375,000	125,000
Selling and administrative expenses	250,000	200,000

Assume the tax rate is 30 percent.

Required:

1. Prepare a segmented income statement using the format presented in Figure 11.3. Include the profit margin ratio for each division at the bottom of the segmented income statement.

2. Using net income as the measure, which division is most profitable? Explain why this conclusion might be misleading.

3. What does the profit margin ratio tell us about each division? Why do organizations often use profit margin ratio to evaluate division performance rather than simply using net income?