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: Mountain Bike Division $ 2,470,000 1,161,000 839,700 1,900,000 Sales Cost of goods sold Operating expenses Invested assets Required: Road Bike Division $ 2,310,000 1,016,000 901,300 2,100,000 1. Prepare condensed divisional income statements for the year ended December 31, 2017, assuming that there were no service department charges. Free Ride Bike Company Divisional Income Statements For the Year Ended December 31, 2017 Sales Cost of goods sold Gross profit Operating expenses Income from operations Road Bike Division Mountain Bike Division 2. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and rate of return on investment for ea division. If required, round your answers to one decimal place. Division Profit Margin Investment Turnover Road Bike Division Mountain Bike Division 3. If management desires a minimum acceptable rate of return of 17%, determine the residual income for each division. If required, use the minus sign to indicate a negative income. Residual Income ROI Road Bike Division Mountain Bike Division 4. On the basis of income from operations, the operations Division is the more profitable of the two divisions. However, income from consider the amount of invested assets in each division. On the basis of residual income, the Division is the more profitable of the two divisions.
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: Mountain Bike Division $ 2,470,000 1,161,000 839,700 1,900,000 Sales Cost of goods sold Operating expenses Invested assets Required: Road Bike Division $ 2,310,000 1,016,000 901,300 2,100,000 1. Prepare condensed divisional income statements for the year ended December 31, 2017, assuming that there were no service department charges. Free Ride Bike Company Divisional Income Statements For the Year Ended December 31, 2017 Sales Cost of goods sold Gross profit Operating expenses Income from operations Road Bike Division Mountain Bike Division 2. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and rate of return on investment for ea division. If required, round your answers to one decimal place. Division Profit Margin Investment Turnover Road Bike Division Mountain Bike Division 3. If management desires a minimum acceptable rate of return of 17%, determine the residual income for each division. If required, use the minus sign to indicate a negative income. Residual Income ROI Road Bike Division Mountain Bike Division 4. On the basis of income from operations, the operations Division is the more profitable of the two divisions. However, income from consider the amount of invested assets in each division. On the basis of residual income, the Division is the more profitable of the two divisions.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text: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:
Mountain Bike Division
$ 2,470,000
1,161,000
Sales
Cost of goods sold
Operating expenses
Invested assets
Required:
Road Bike Division
$ 2,310,000
1,016,000
901,300
2,100,000
1. Prepare condensed divisional income statements for the year ended December 31, 2017, assuming that there were no service department
charges.
Free Ride Bike Company
Divisional Income Statements
For the Year Ended December 31, 20Y7
Sales
Cost of goods sold
Gross profit
Operating expenses
Income from operations
Road Bike Division Mountain Bike Division
839,700
1,900,000
2. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and rate of return on investment for each
division. If required, round your answers to one decimal place.
Division
Profit Margin
Road Bike Division
%
Investment Turnover
Residual Income
Road Bike Division
Mountain Bike Division
4. On the basis of income from operations, the
operations
ROI
Mountain Bike Division
3. If management desires a minimum acceptable rate of return of 17%, determine the residual income for each division. If required, use the
minus sign to indicate a negative income.
%
Division is the more profitable of the two divisions. However, income from
consider the amount of invested assets in each division. On the basis of residual income, the
Division is the more profitable of the two divisions.
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