Divisional performance analysis and evaluationThe 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 DescriptionRoad BikeDivisionMountain BikeDivisionSales$3,080,000$3,220,000Cost of goods sold1,355,0001,513,000Operating expenses1,170,6001,224,000Invested assets2,800,0002,300,000Required:Question Content Area1. Prepare condensed divisional income statements for the year ended December 31, 20Y7, assuming that there were no support department allocations.Free Ride Bike CompanyDivisional Income StatementsFor the Year Ended December 31, 20Y7Line Item DescriptionRoad BikeDivisionMountain BikeDivisionSales$Sales$SalesCost of goods soldCost of goods soldCost of goods soldGross profit$Gross profit$Gross profitOperating expensesOperating expensesOperating expensesOperating income$Operating income$Operating income Feedback Area Feedback 1. For each division, subtract operating expenses from gross profit.Question Content Area2. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each division. If required, round your answers to one decimal place.DivisionProfit MarginInvestment TurnoverROIRoad Bike Divisionfill in the blank 1 of 6%fill in the blank 2 of 6fill in the blank 3 of 6%Mountain Bike Divisionfill in the blank 4 of 6%fill in the blank 5 of 6fill in the blank 6 of 6%3. If management desires a minimum acceptable rate of return of 16%, determine the residual income for each division.DivisionResidual IncomeRoad Bike Divisionfill in the blank 1 of 2$Mountain Bike Divisionfill 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.

Sales are the main activity of an trading organization and expenses releted to sales are called…

Answered: divisions

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter14: Decentralized Operations

Section: Chapter Questions

Problem 14.5.2P

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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

Question Content Area

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

Free Ride Bike CompanyDivisional Income StatementsFor the Year Ended December 31, 20Y7

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

Feedback Area

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1. For each division, subtract operating expenses from gross profit.

Question Content Area

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	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 rate of return of 16%, determine the residual income for each division.

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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