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
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 | $3,960,000 | $4,200,000 | ||
Cost of goods sold | 1,742,000 | 1,974,000 | ||
Operating expenses | 1,584,400 | 1,638,000 | ||
Invested assets | 3,600,000 | 3,000,000 |
Required:
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 | ||
Cost of goods sold | ||
Gross profit | ||
Operating expenses | ||
Operating income |
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 | |||
Mountain Bike Division |
3. If management desires a minimum acceptable rate of return of 15%, determine the residual income for each division.
Residual Income | |
Road Bike Division | |
Mountain Bike Division |
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