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:

	Road Bike Division		Mountain Bike Division
Sales	$ 2,400,000		$ 2,520,000
Cost of goods sold	1,056,000		1,184,000
Operating expenses	912,000		781,600
Invested assets	2,000,000		1,800,000

Required:

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

Free Ride Bike Company
Divisional Income Statements
For the Year Ended December 31, 20Y7
	Road Bike Division	Mountain Bike Division
Sales	$fill in the blank d4d2de032034fb6_1	$fill in the blank d4d2de032034fb6_2
Cost of goods sold	fill in the blank d4d2de032034fb6_3	fill in the blank d4d2de032034fb6_4
Gross profit	$fill in the blank d4d2de032034fb6_5	$fill in the blank d4d2de032034fb6_6
Operating expenses	fill in the blank d4d2de032034fb6_7	fill in the blank d4d2de032034fb6_8
Income from operations	$fill in the blank d4d2de032034fb6_9	$fill in the blank d4d2de032034fb6_10

2. Using the DuPont formula for return on investment, determine the profit 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 d45698002007f82_1 %	fill in the blank d45698002007f82_2	fill in the blank d45698002007f82_3 %
Mountain Bike Division	fill in the blank d45698002007f82_4 %	fill in the blank d45698002007f82_5	fill in the blank d45698002007f82_6 %

3. If management desires a minimum acceptable rate of return of 19%, determine the residual income for each division. If required, use the minus sign to indicate a negative income.

	Residual Income
Road Bike Division	$fill in the blank d45698002007f82_7
Mountain Bike Division	$fill in the blank d45698002007f82_8

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