Yearly data as followed:
Division I
Division II
Division III
Sales
$1,000,000
$2,3600,000
$1,600,000
number of units sold
500,000
860,000
320,000
Contribution margin
520,000
950,000
920,000
Direct fixed costs
118,500
755,240
463,800
Allocated corporate costs
40,960
204,760
76,200
Average net operating assets
$640,000
$1,600,000
$840,000
Weighted-average cost of capital
17%
17%
17%
In addition, there are $190,000 in corporate costs which cannot reasonably be allocated to the divisions.
Company ABC has a target rate of return of 20 percent, and is subject to a 30% tax rate. Division I was recently presented with an investment in a $105,000 piece of machinery that would save operating costs of $5,000 per year over a period of thirty years. The new machinery would replace a current piece of equipment that could be sold for $2,000 and has a book value of $10,000. The manager of Division I, with full decision rights on the matter, decided against replacing the current equipment.
Q: Create a multilevel income statement, showing the three divisional incomes and the corporate net income for Company ABC
Yearly data as followed:
| Division I | Division II | Division III | |
| Sales | $1,000,000 | $2,3600,000 | $1,600,000 |
| number of units sold | 500,000 | 860,000 | 320,000 |
| Contribution margin | 520,000 | 950,000 | 920,000 |
| Direct fixed costs | 118,500 | 755,240 | 463,800 |
| Allocated corporate costs | 40,960 | 204,760 | 76,200 |
| Average net operating assets | $640,000 | $1,600,000 | $840,000 |
| Weighted-average cost of capital | 17% | 17% | 17% |
In addition, there are $190,000 in corporate costs which cannot reasonably be allocated to the divisions.
Company ABC has a target rate of return of 20 percent, and is subject to a 30% tax rate. Division I was recently presented with an investment in a $105,000 piece of machinery that would save operating costs of $5,000 per year over a period of thirty years. The new machinery would replace a current piece of equipment that could be sold for $2,000 and has a book value of $10,000. The manager of Division I, with full decision rights on the matter, decided against replacing the current equipment.
Q: Create a multilevel income statement, showing the three divisional incomes and the corporate net income for Company ABC
