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 Cost of goods sold Operating expenses Invested assets Required: $3,410,000 1,500,000 1,330,300 3,100,000 Sales Cost of goods sold Gross profit Operating expenses Operating income 1. Prepare condensed divisional income statements for the year ended December 31, 20Y7, assuming that there were no support department allocations. Free Ride Bike Company Divisional Income Statements For the Year Ended December 31, 20Y7 $3,640,000 1,711,000 1,419,400 2,600,000 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 each division. If required, round your answers to one decimal place. Division Road Bike Division Mountain Bike Division 3. If management desires a minimum acceptable rate of return of 19%, determine the residual income for each division. 1001 Profit Margin Investment Turnover ROI % %
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 Cost of goods sold Operating expenses Invested assets Required: $3,410,000 1,500,000 1,330,300 3,100,000 Sales Cost of goods sold Gross profit Operating expenses Operating income 1. Prepare condensed divisional income statements for the year ended December 31, 20Y7, assuming that there were no support department allocations. Free Ride Bike Company Divisional Income Statements For the Year Ended December 31, 20Y7 $3,640,000 1,711,000 1,419,400 2,600,000 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 each division. If required, round your answers to one decimal place. Division Road Bike Division Mountain Bike Division 3. If management desires a minimum acceptable rate of return of 19%, determine the residual income for each division. 1001 Profit Margin Investment Turnover ROI % %
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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
Road Bike Division
Sales
Cost of goods sold
Operating expenses
Invested assets
Required:
1. Prepare condensed divisional income statements for the year ended December 31, 20Y7, assuming that there were no support department allocations.
Free Ride Bike Company
Divisional Income Statements
For the Year Ended December 31, 20Y7
Sales
Cost of goods sold
Gross profit
Operating expenses
Operating income $
Road Bike Division
Road Bike Division
$3,410,000
1,500,000
1,330,300
3,100,000
$
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 each division. If required, round your answers to one decimal place.
Division
Profit Margin
Mountain Bike Division
Road Bike
Mountain Bike
$
4. On the basis of operating income, the
$3,640,000
1,711,000
1,419,400
2,600,000
%
Mountain Bike Division
3. If management desires a minimum acceptable rate of return of 19%, determine the residual income for each division.
Residual Income
%
Investment Turnover
ROI
%
%
Division is the more profitable of the two divisions. However, operating income
Division is the more profitable of the two divisions.
consider the amount of invested assets in each division. On the basis of residual income, the
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