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	$3,600,000		$3,900,000
Cost of goods sold	1,584,000		1,833,000
Operating expenses	1,404,000		1,521,000
Invested assets	3,000,000		2,600,000

Required:

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

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 da640cfec04efdd_1	$fill in the blank da640cfec04efdd_2
Cost of goods sold	fill in the blank da640cfec04efdd_3	fill in the blank da640cfec04efdd_4
Gross profit	$fill in the blank da640cfec04efdd_5	$fill in the blank da640cfec04efdd_6
Operating expenses	fill in the blank da640cfec04efdd_7	fill in the blank da640cfec04efdd_8
Income from operations	$fill in the blank da640cfec04efdd_9	$fill in the blank da640cfec04efdd_10

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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 21cceef9b004039_1%	fill in the blank 21cceef9b004039_2	fill in the blank 21cceef9b004039_3%
Mountain Bike Division	fill in the blank 21cceef9b004039_4%	fill in the blank 21cceef9b004039_5	fill in the blank 21cceef9b004039_6%

3. If management's minimum acceptable return is 17%, 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 21cceef9b004039_7
Mountain Bike Division	$fill in the blank 21cceef9b004039_8

4. On the basis of income from operations, the

Road BikeMountain Bike

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

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.