The vice president of operations of Scott Hall and Associates 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 1,300,000 1,440,000 Operating expenses 202,000 236,800 Invested assets 1,400,000 800,000 Prepare condensed divisional income statements for the year ended December 31, 2021, assuming that there were no service department charges. Using the DuPont formula for return on investment, determine the profit margin percentage, investment turnover, and return on investment for each division. (Round percentages and the investment turnover to two places behind the decimal.) If management’s minimum acceptable return on investment is 10%, determine the residual income for each division.
The vice president of operations of Scott Hall and Associates 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 1,300,000 1,440,000 Operating expenses 202,000 236,800 Invested assets 1,400,000 800,000 Prepare condensed divisional income statements for the year ended December 31, 2021, assuming that there were no service department charges. Using the DuPont formula for return on investment, determine the profit margin percentage, investment turnover, and return on investment for each division. (Round percentages and the investment turnover to two places behind the decimal.) If management’s minimum acceptable return on investment is 10%, determine the residual income for each division.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The vice president of operations of Scott Hall and Associates 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 |
1,300,000 |
1,440,000 |
|
Operating expenses |
202,000 |
236,800 |
|
Invested assets |
1,400,000 |
800,000 |
- Prepare condensed divisional income statements for the year ended December 31, 2021, assuming that there were no service department charges.
- Using the DuPont formula for
return on investment , determine the profit margin percentage, investment turnover, and return on investment for each division. (Round percentages and the investment turnover to two places behind the decimal.) - If management’s minimum acceptable return on investment is 10%, determine the residual income for each division.
- In your own words evaluate the performance of the two divisions, using the performance measures determined in parts (a), (b), and (c).
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