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 support department allocations. Free Ride Bike Company Divisional Income Statements For the Year Ended December 31, 20Y7 Road Bike Division Mountain Bike Division Sales $fill in the blank e15b55006fabff7_1 $fill in the blank e15b55006fabff7_2 Cost of goods sold fill in the blank e15b55006fabff7_3 fill in the blank e15b55006fabff7_4 Gross profit $fill in the blank e15b55006fabff7_5 $fill in the blank e15b55006fabff7_6 Operating expenses fill in the blank e15b55006fabff7_7 fill in the blank e15b55006fabff7_8 Operating income $fill in the blank e15b55006fabff7_9 $fill in the blank e15b55006fabff7_10 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 211f7afcb044068_1 % fill in the blank 211f7afcb044068_2 fill in the blank 211f7afcb044068_3 % Mountain Bike Division fill in the blank 211f7afcb044068_4 % fill in the blank 211f7afcb044068_5 fill in the blank 211f7afcb044068_6 % 3. If management's minimum acceptable return on investment is 10%, determine the residual income for each division. Residual Income Road Bike Division $fill in the blank 211f7afcb044068_7 Mountain Bike Division $fill in the blank 211f7afcb044068_8

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 support department allocations. Free Ride Bike Company Divisional Income Statements For the Year Ended December 31, 20Y7 Road Bike Division Mountain Bike Division Sales $fill in the blank e15b55006fabff7_1 $fill in the blank e15b55006fabff7_2 Cost of goods sold fill in the blank e15b55006fabff7_3 fill in the blank e15b55006fabff7_4 Gross profit $fill in the blank e15b55006fabff7_5 $fill in the blank e15b55006fabff7_6 Operating expenses fill in the blank e15b55006fabff7_7 fill in the blank e15b55006fabff7_8 Operating income $fill in the blank e15b55006fabff7_9 $fill in the blank e15b55006fabff7_10 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 211f7afcb044068_1 % fill in the blank 211f7afcb044068_2 fill in the blank 211f7afcb044068_3 % Mountain Bike Division fill in the blank 211f7afcb044068_4 % fill in the blank 211f7afcb044068_5 fill in the blank 211f7afcb044068_6 % 3. If management's minimum acceptable return on investment is 10%, determine the residual income for each division. Residual Income Road Bike Division $fill in the blank 211f7afcb044068_7 Mountain Bike Division $fill in the blank 211f7afcb044068_8

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 support department allocations.

Free Ride Bike Company
Divisional Income Statements
For the Year Ended December 31, 20Y7
	Road Bike Division	Mountain Bike Division
Sales	$fill in the blank e15b55006fabff7_1	$fill in the blank e15b55006fabff7_2
Cost of goods sold	fill in the blank e15b55006fabff7_3	fill in the blank e15b55006fabff7_4
Gross profit	$fill in the blank e15b55006fabff7_5	$fill in the blank e15b55006fabff7_6
Operating expenses	fill in the blank e15b55006fabff7_7	fill in the blank e15b55006fabff7_8
Operating income	$fill in the blank e15b55006fabff7_9	$fill in the blank e15b55006fabff7_10

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 211f7afcb044068_1 %	fill in the blank 211f7afcb044068_2	fill in the blank 211f7afcb044068_3 %
Mountain Bike Division	fill in the blank 211f7afcb044068_4 %	fill in the blank 211f7afcb044068_5	fill in the blank 211f7afcb044068_6 %

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

	Residual Income
Road Bike Division	$fill in the blank 211f7afcb044068_7
Mountain Bike Division	$fill in the blank 211f7afcb044068_8

4. On the basis of operating income, the ___ Road bike/ mountain bike___Division is the more profitable of the two divisions. However, operating income__does/does not___ consider the amount of invested assets in each division. On the basis of residual income, the___road bike/mountain bike____ Division is the more profitable of the two divisions.

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