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 Category Road Bike Division Mountain Bike Division Sales $1,750,000 $1,810,000 Cost of goods sold Operating expenses 1,300,000 1,440,000 202,000 236,800 Invested assets 1,400,000 800,000 Instructions a. Prepare condensed divisional income statements for the year ended December 31, 2020, assuming that there were no service department charges. b. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each division. (Round percentage and the investment turnover to one decimal place.) c. If management's minimum acceptable return on investmer

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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:
Category
Road Bike Division Mountain Bike Division
Sales
$1,750,000
$1,810,000
Cost of goods sold
Operating expenses
1,300,000
1,440,000
202,000
236,800
800,000
Invested assets
1,400,000
Instructions
a. Prepare condensed divisional income statements for the
year ended December 31, 2020, assuming that there were
no service department charges.
b. Using the DuPont formula for return on investment,
determine the profit margin, investment turnover, and
return on investment for each division. (Round percentages
and the investment turnover to one decimal place.)
c. If management's minimum acceptable return on investment
is 10%, determine the residual income for each division.
d. Discuss the evaluation of the two divisions, using the
performance measures determined in parts (a), (b), and (c).
Transcribed Image Text: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: Category Road Bike Division Mountain Bike Division Sales $1,750,000 $1,810,000 Cost of goods sold Operating expenses 1,300,000 1,440,000 202,000 236,800 800,000 Invested assets 1,400,000 Instructions a. Prepare condensed divisional income statements for the year ended December 31, 2020, assuming that there were no service department charges. b. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each division. (Round percentages and the investment turnover to one decimal place.) c. If management's minimum acceptable return on investment is 10%, determine the residual income for each division. d. Discuss the evaluation of the two divisions, using the performance measures determined in parts (a), (b), and (c).
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