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:
| Line Item Description | Road Bike Division |
Mountain Bike Division |
|---|---|---|
| Sales | $3,080,000 | $3,220,000 |
| Cost of goods sold | 1,355,000 | 1,513,000 |
| Operating expenses | 1,170,600 | 1,224,000 |
| Invested assets | 2,800,000 | 2,300,000 |
Required:
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1. Prepare condensed divisional income statements for the year ended December 31, 20Y7, assuming that there were no support department allocations.
Line Item Description |
Road Bike Division |
Mountain Bike Division |
|---|---|---|
| Sales | $Sales | $Sales |
| Cost of goods sold | Cost of goods sold | Cost of goods sold |
| Gross profit | $Gross profit | $Gross profit |
| Operating expenses | Operating expenses | Operating expenses |
| Operating income | $Operating income | $Operating income |
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1. For each division, subtract operating expenses from gross profit.
Question Content Area
2. Using the DuPont formula for
| Division | Profit Margin | Investment Turnover | ROI |
|---|---|---|---|
| Road Bike Division | fill in the blank 1 of 6% | fill in the blank 2 of 6 | fill in the blank 3 of 6% |
| Mountain Bike Division | fill in the blank 4 of 6% | fill in the blank 5 of 6 | fill in the blank 6 of 6% |
3. If management desires a minimum acceptable
| Division | Residual Income |
|---|---|
| Road Bike Division | fill in the blank 1 of 2$ |
| Mountain Bike Division | fill in the blank 2 of 2$ |
4. On the basis of operating income, the fill in the blank 1 of 3
Division is the more profitable of the two divisions. However, operating income fill in the blank 2 of 3
consider the amount of invested assets in each division. On the basis of residual income, the fill in the blank 3 of 3
Division is the more profitable of the two divisions.
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