The vice president of operations of Free Ride Bike Company is evaluating the performance of two divisions
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Question:
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 $ $
Cost of goods sold
Operating expenses
Invested assets
Required:
Question Content Area
Prepare condensed divisional income statements for the year ended December Y assuming that there were no support department allocations.
Free Ride Bike Company
Divisional Income Statements
For the Year Ended December Y
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
Question Content Area
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 of
fill in the blank of
fill in the blank of
Mountain Bike Division fill in the blank of
fill in the blank of
fill in the blank of
If management desires a minimum acceptable rate of return of determine the residual income for each division.
Division Residual Income
Road Bike Division fill in the blank of $
Mountain Bike Division fill in the blank of $
On the basis of operating income, the fill in the blank of
Division is the more profitable of the two divisions. However, operating income fill in the blank of
consider the amount of invested assets in each division. On the basis of residual income, the fill in the blank of
Division is the more profitable of the two divisions.
Related Book For
Fundamentals of Financial Accounting
ISBN: 978-1259103292
4th Canadian edition
Authors: Fred Phillips, Robert Libby, Patricia Libby, Brandy Mackintosh
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