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 $$4,290,000$ $$4,550,000$

Cost of goods sold $1,888,0002,139,000$

Operating expenses $1,629,8001,683,000$

Invested assets $3,900,0003,500,000$

Required:

Question Content Area

$1.$ Prepare condensed divisional income statements for the year ended December $31,20$Y$7,$ assuming that there were no service department cost allocations.

Free Ride Bike Company

Divisional Income Statements

For the Year Ended December $31,20$Y$7$

Road Bike Division Mountain Bike Division

Sales $fill in the blank f$242$bb$04$a$06$cf$8$d$\_1$

$fill in the blank f$242$bb$04$a$06$cf$8$d$\_2$

Cost of goods sold fill in the blank f$242$bb$04$a$06$cf$8$d$\_3$

fill in the blank f$242$bb$04$a$06$cf$8$d$\_4$

Gross profit $fill in the blank f$242$bb$04$a$06$cf$8$d$\_5$

$fill in the blank f$242$bb$04$a$06$cf$8$d$\_6$

Operating expenses fill in the blank f$242$bb$04$a$06$cf$8$d$\_7$

fill in the blank f$242$bb$04$a$06$cf$8$d$\_8$

Income from operations $fill in the blank f$242$bb$04$a$06$cf$8$d$\_9$

$fill in the blank f$242$bb$04$a$06$cf$8$d$\_10$

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 dd$28$f$4$fedf$8$ff$9$a$\_1$

$\%$ fill in the blank dd$28$f$4$fedf$8$ff$9$a$\_2$

fill in the blank dd$28$f$4$fedf$8$ff$9$a$\_3$

$\%$

Mountain Bike Division fill in the blank dd$28$f$4$fedf$8$ff$9$a$\_4$

$\%$ fill in the blank dd$28$f$4$fedf$8$ff$9$a$\_5$

fill in the blank dd$28$f$4$fedf$8$ff$9$a$\_6$

$\%$

$3.$ If management's minimum acceptable return is $15\%,$ determine the residual income for each division. If required, use the minus sign to indicate a negative income.

Division Residual Income

Road Bike Division $fill in the blank dd$28$f$4$fedf$8$ff$9$a$\_7$

Mountain Bike Division $fill in the blank dd$28$f$4$fedf$8$ff$9$a$\_8$

$4.$ 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.