Meregrs and Acquisitions

**************************2006************************** MCS 2006 (SUM NO 7) Q) Soniya Company has two Divisions: A & B. Return on Investment for both divisions is 20%. Details are given below:- Particulars | Div A | Div B | Divisional sales | 4000000 | 9600000 | Divisional Investment | 2000000 | 3200000 | Profit | 400000 | 640000 | Analyse and comment on divisional performance of each. ANSWER As Profit Margin = Profit *100 Sales Profit Margin for Division ‘A’= 4,00,000 /40,00,000 *100 = 10% Profit Margin for Division ‘B’ = 6,40,000/ 96,00,000 *100 = 6.6% Turnover of Investment = Sales * 100 Investment Turnover of Investment for Division ‘A’ = 40,00,000/20,00,000 = 2 times Turnover of Investment for Division ‘B’ = 96,00,000/32,00,000 = 3 times As Return on investment for both Divisions A and B is 20%. COMMENTS:- Division ‘A’ – Although ‘A’ has more profit margin than Division ‘B’ that is 10% as compared to 6.6% of ‘B’, so it has more profitability but inspite of it, division ‘A’ has lower turnover of investment that its assets management is bad than Division ‘B’, it can be improved by increased sales or reducing investment. Division ‘B’ – Needs to improve profit margin by increasing sales and reduce variable cost and sales at same price or by reducing salesprice and increase the volume of sales so that its profit would improve. As it has good assets management shown by its turnoverof Division ‘B’ that is 3 times which is better than Division ‘A’. So it can become profitable organisation by improving Profit Margin

2006: sum(11)
Two divisions A and B of sonali enterprises operate Profit centers. Div A normally purchases annually 10000 nos. of required components from Div B, which has recently informed Div A that it will increase selling price p.u to Rs. 1100. Div A decided to purchase the components from open market