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 DivisionMountain Bike DivisionSales$5,060,000$5,320,000Cost of goods sold2,226,0002,500,000Operating expenses1,973,8002,075,200Invested assets4,600,0003,800,000

Required:

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

Free Ride Bike CompanyDivisional Income StatementsFor the Year Ended December 31, 20Y7Road Bike DivisionMountain Bike DivisionSales$

fill in the blank d8389300601efd0_1

$

fill in the blank d8389300601efd0_2

Cost of goods soldfill in the blank d8389300601efd0_3

fill in the blank d8389300601efd0_4

Gross profit$

fill in the blank d8389300601efd0_5

$

fill in the blank d8389300601efd0_6

Operating expensesfill in the blank d8389300601efd0_7

fill in the blank d8389300601efd0_8

Operating income$

fill in the blank d8389300601efd0_9

$

fill in the blank d8389300601efd0_10

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.

DivisionProfit MarginInvestment TurnoverROIRoad Bike Divisionfill in the blank 51d9bff90040069_1

%fill in the blank 51d9bff90040069_2

fill in the blank 51d9bff90040069_3

%Mountain Bike Divisionfill in the blank 51d9bff90040069_4

%fill in the blank 51d9bff90040069_5

fill in the blank 51d9bff90040069_6

%

3.If management desires a minimum acceptable rate of return of 16%, determine theresidual incomefor each division.

Residual IncomeRoad Bike Division$fill in the blank 51d9bff90040069_7

Mountain Bike Division$fill in the blank 51d9bff90040069_8

4.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.