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$1,728,000$1,760,000Cost of goods sold1,380,0001,400,000Operating expenses175,200236,800Invested assets1,440,000800,000Required:

1.Prepare condensed divisional income statements for the year ended December 31, 2016, assuming that there were noservice department charges.

Free Ride Bike CompanyDivisional Income StatementsFor the Year Ended December 31, 2016Road Bike DivisionMountain Bike DivisionSales$$Cost of goods soldGross profit$$Operating expensesIncome from operations$$

2.Using theDuPont formulaforrate of 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.

Profit MarginInvestment TurnoverROIRoad Bike Division%%Mountain Bike Division%%3.If management's minimum acceptable rate of return is 10%, determine theresidual incomefor each division.

Residual IncomeRoad Bike Division$Mountain Bike Division$4.On the basis of residual income, the

Division is the more profitable of the two divisions. On the basis of income from operations, the

Division is the more profitable of the two divisions.