Question
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
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:
Line Item Description | Road Bike Division | Mountain Bike Division |
---|---|---|
Sales | $5,610,000 | $5,880,000 |
Cost of goods sold | 2,468,000 | 2,764,000 |
Operating expenses | 2,132,200 | 2,175,200 |
Invested assets | 5,100,000 | 4,200,000 |
Required:
Question Content Area
1. Prepare condensed divisional income statements for the year ended December 31, 20Y7, assuming that there were no support department allocations.
Line Item Description | Road Bike Division | Mountain Bike Division |
---|---|---|
Sales | $Sales | $Sales |
Cost of goods sold | Cost of goods sold | Cost of goods sold |
Gross profit | $Gross profit | $Gross profit |
Operating expenses | Operating expenses | Operating expenses |
Operating income | $Operating income | $Operating income |
Question Content Area
2. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each division. If required, round your answers to one decimal place.
Division | Profit Margin | Investment Turnover | ROI |
---|---|---|---|
Road Bike Division | fill in the blank 1 of 6% | fill in the blank 2 of 6 | fill in the blank 3 of 6% |
Mountain Bike Division | fill in the blank 4 of 6% | fill in the blank 5 of 6 | fill in the blank 6 of 6% |
3. If management desires a minimum acceptable rate of return of 20%, determine the residual income for each division.
Division | Residual Income |
---|---|
Road Bike Division | fill in the blank 1 of 2$ |
Mountain Bike Division | fill in the blank 2 of 2$ |
4. On the basis of operating income, the fill in the blank 1 of 3
Road BikeMountain Bike
Division is the more profitable of the two divisions. However, operating income fill in the blank 2 of 3
doesdoes not
consider the amount of invested assets in each division. On the basis of residual income, the fill in the blank 3 of 3
Road BikeMountain Bike
Division is the more profitable of the two divisions.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started