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 $1,728,000 $1,760,000 Cost of goods sold 1,380,000 1,400,000 Operating expenses 175,200 236,800 Invested assets 1,440,000 800,000 Required: 1. Prepare condensed divisional income statements for the year ended December 31, 20Y7, assuming that there were no service department charges. Free Ride Bike Company Divisional Income Statements For the Year Ended December 31, 20Y7 Road Bike Division Mountain Bike Division Sales $ $ Cost of goods sold Gross profit $ $ Operating expenses Income from operations $ $ 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 % % Mountain Bike Division % % 3. If management's minimum acceptable return on investment is 10%, determine the residual income for each division. Residual Income Road Bike Division $ Mountain Bike Division $

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 5PB: Divisional performance analysis and evaluation The vice president of operations of Free Ride Bike...

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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	$1,728,000		$1,760,000
Cost of goods sold	1,380,000		1,400,000
Operating expenses	175,200		236,800
Invested assets	1,440,000		800,000

Required:

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

Free Ride Bike Company
Divisional Income Statements
For the Year Ended December 31, 20Y7
	Road Bike Division	Mountain Bike Division
Sales	$	$
Cost of goods sold
Gross profit	$	$
Operating expenses
Income from operations	$	$

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	%		%
Mountain Bike Division	%		%

3. If management's minimum acceptable return on investment is 10%, determine the residual income for each division.

	Residual Income
Road Bike Division	$
Mountain Bike Division	$

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