Divisional performance analysis and evaluation

statement data for the past year for each division are as follows:

Required:

Free Ride Bike Company

Divisional Income Statements

For the Year Ended December $31,20Y7$

Road Bike Mountain Bike

Division Division

Line Item Description

Sales

$

Cost of goods sold

Gross profit

Operating expenses

Operating income

answers to one decimal place.

If management desires a minimum acceptable rate of return of $12\%,$ determine the residual income for each division.

Residual Income

Road Bike Division

Mountain Bike Division

$

$

On the basis of operating income, the

Division is the more profitable of the two divisions. However, operating income

consider the

amount of invested assets in each division. On the basis of residual income, the

Division is the more profitable of the two divisions.