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:

Required:

Prepare condensed divisional income statements for the year ended December $31,$

$20$Y$7,$ assuming that there were no support department allocations.

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

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.

If management's minimum acceptable return on investment is $10\%,$ determine the

residual income for each division.

Residual Income

Road Bike Division

Mountain Bike Division

On the basis of operating income, the

the two divisions. However, operating income

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

Division is the more profitable of the two divisions.

Division is the more profitable of

consider the amount of

consider the amount of