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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: Road Bike Division Mountain Bike Division Sales $1,760,000 Cost of goods sold $1,728,000 1,380,000 175,200 1,440,000 1,400,000 236,800 Operating expenses Invested assets 800,000 Required: 1. Prepare condensed divisional income statements for the year ended December 31, 2017, assuming that there were no support department allocations Free Ride Bike Company Divisional Income Statements For the Year Ended December 31, 2017 Road Bike Division Mountain Bike Division Sales 1.721.00 1.440800 X Cost of goods sold 1.000 1400 X Gross profit 1410X 348,000 17.00 Operating expenses 17.00 X Operating income 171.00 20 X 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 10 1.2 12 % Mountain Bike Division 3. If management's minimum acceptable return on investment is 10%, determine the residual income for each division. Residual Income Road Bike Division Mountain Bike Division 4. On the basis of operating income, the Road Bike Division is the more profitable of the two divisions. However, operating income does not consider the amount of invested assets in each division. On the basis of residual income, the Mountain Bike Division is the more profitable of the two divisions
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