Divisional Performance Analysis and Evaluation The vice president of operations of Free Ride Bike 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:   Road Bike Division Mountain Bike Division Sales $1,728,000   $1,760,000   Cost of goods sold 1,380,000   1,400,000   Operating expenses 175,200   236,800   Invested assets 1,440,000   800,000     Required: 1.  Prepare condensed divisional income statements for the year ended December 31, 20Y7, assuming that there were no service department charges. Free Ride Bike Company Divisional Income Statements For the Year Ended December 31, 20Y7   Road Bike Division Mountain Bike Division Sales $ $ Cost of goods sold     Gross profit $ $ Operating expenses     Income from operations $ $ 2.  Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each division. If required, round your answers to one decimal place. Division Profit Margin Investment Turnover ROI Road Bike Division %   % Mountain Bike Division %   % 3.  If management's minimum acceptable return on investment is 10%, determine the residual income for each division.   Residual Income Road Bike Division $ Mountain Bike Division $

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Divisional Performance Analysis and Evaluation

The vice president of operations of Free Ride Bike 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:

  Road Bike Division Mountain Bike Division
Sales $1,728,000   $1,760,000  
Cost of goods sold 1,380,000   1,400,000  
Operating expenses 175,200   236,800  
Invested assets 1,440,000   800,000  

 

Required:

1.  Prepare condensed divisional income statements for the year ended December 31, 20Y7, assuming that there were no service department charges.

Free Ride Bike Company
Divisional Income Statements
For the Year Ended December 31, 20Y7
  Road Bike Division Mountain Bike Division
Sales $ $
Cost of goods sold    
Gross profit $ $
Operating expenses    
Income from operations $ $

2.  Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each division. If required, round your answers to one decimal place.

Division Profit Margin Investment Turnover ROI
Road Bike Division %   %
Mountain Bike Division %   %

3.  If management's minimum acceptable return on investment is 10%, determine the residual income for each division.

  Residual Income
Road Bike Division $
Mountain Bike Division $

 

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