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	$5,720,000		$6,020,000
Cost of goods sold	2,517,000		2,829,000
Operating expenses	2,173,400		2,227,800
Invested assets	5,200,000		4,300,000

Required:

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

	Road Bike Division	Mountain Bike Division
Sales	$fill in the blank a702a3f7cfb2074_1	$fill in the blank a702a3f7cfb2074_2
Cost of goods sold	fill in the blank a702a3f7cfb2074_3	fill in the blank a702a3f7cfb2074_4
Gross profit	$fill in the blank a702a3f7cfb2074_5	$fill in the blank a702a3f7cfb2074_6
Operating expenses	fill in the blank a702a3f7cfb2074_7	fill in the blank a702a3f7cfb2074_8
Operating income	$fill in the blank a702a3f7cfb2074_9	$fill in the blank a702a3f7cfb2074_10

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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 e2b641048f8afde_1 %	fill in the blank e2b641048f8afde_2	fill in the blank e2b641048f8afde_3 %
Mountain Bike Division	fill in the blank e2b641048f8afde_4 %	fill in the blank e2b641048f8afde_5	fill in the blank e2b641048f8afde_6 %

3. If management desires a minimum acceptable rate of return of 17%, determine the residual income for each division.

	Residual Income
Road Bike Division	$fill in the blank e2b641048f8afde_7
Mountain Bike Division	$fill in the blank e2b641048f8afde_8

4. On the basis of operating income, the

Road BikeMountain Bike

Division is the more profitable of the two divisions. However, operating income

doesdoes not

consider the amount of invested assets in each division. On the basis of residual income, the

Road BikeMountain Bike

Division is the more profitable of the two divisions.