Divisional Performance Analysis and Evaluation

The vice president of operations of Free Ride Bike Company is evaluating the performance of two divisions organized asinvestment centers. Invested assets and condensed income statement data for the past year for each division are as follows:

	Road Bike Division	Mountain Bike Division
Sales	$3,600,000		$3,750,000
Cost of goods sold	1,584,000		1,763,000
Operating expenses	1,332,000		1,349,500
Invested assets	3,000,000		2,500,000

Required:

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

	Road Bike Division	Mountain Bike Division
Sales	fill in the blank	fill in the blank
Cost of goods sold	fill in the blank	fill in the blank
Gross profit	fill in the blank	fill in the blank
Operating expenses	fill in the blank	fill in the blank
Operating income	fill in the blank	fill in the blank

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2. Using theDuPont formulafor return on investment, determine theprofit margin,investment turnover, and rate of 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	fill in the blank	fill in the blank
Mountain Bike Division	fill in the blank	fill in the blank	fill in the blank

3. If management desires a minimum acceptable rate of return of 15%, determine theresidual incomefor each division.

	Residual Income
Road Bike Division	fill in the blank
Mountain Bike Division	fill in the blank

4. On the basis of operating income, the

Road BikeMountain Bike

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

[doesdoes not]

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

[Road BikeMountain Bike]

Division is the more profitable of the two divisions.