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	$5,880,000		$6,160,000
Cost of goods sold	2,587,000		2,895,000
Operating expenses	2,234,600		2,279,400
Invested assets	4,900,000		4,400,000

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 223bf00c8050fc1_1	$fill in the blank 223bf00c8050fc1_2
Cost of goods sold	fill in the blank 223bf00c8050fc1_3	fill in the blank 223bf00c8050fc1_4
Gross profit	$fill in the blank 223bf00c8050fc1_5	$fill in the blank 223bf00c8050fc1_6
Operating expenses	fill in the blank 223bf00c8050fc1_7	fill in the blank 223bf00c8050fc1_8
Operating income	$fill in the blank 223bf00c8050fc1_9	$fill in the blank 223bf00c8050fc1_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 951863006023007_1 %	fill in the blank 951863006023007_2	fill in the blank 951863006023007_3 %
Mountain Bike Division	fill in the blank 951863006023007_4 %	fill in the blank 951863006023007_5	fill in the blank 951863006023007_6 %

3. If management desires a minimum acceptable rate of return of 18%, determine the residual income for each division.

	Residual Income
Road Bike Division	$fill in the blank 951863006023007_7
Mountain Bike Division	$fill in the blank 951863006023007_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.