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	$5,400,000	$5,700,000
Cost of goods sold	2,376,000	2,679,000
Operating expenses	2,052,000	2,109,000
Invested assets	4,500,000	3,800,000

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.

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

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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 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 18%, 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.