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 $fill in the blank 747434fe2fcbfee_1 $fill in the blank 747434fe2fcbfee_2 Cost of goods sold fill in the blank 747434fe2fcbfee_3 fill in the blank 747434fe2fcbfee_4 Gross profit $fill in the blank 747434fe2fcbfee_5 $fill in the blank 747434fe2fcbfee_6 Operating expenses fill in the blank 747434fe2fcbfee_7 fill in the blank 747434fe2fcbfee_8 Income from operations $fill in the blank 747434fe2fcbfee_9 $fill in the blank 747434fe2fcbfee_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 f534b407a016015_1% fill in the blank f534b407a016015_2 fill in the blank f534b407a016015_3% Mountain Bike Division fill in the blank f534b407a016015_4% fill in the blank f534b407a016015_5 fill in the blank f534b407a016015_6% 3. If management desires a minimum acceptable return of 16%, determine the residual income for each division. If required, use the minus sign to indicate a negative income. Division Residual Income Road Bike Division $fill in the blank f534b407a016015_7 Mountain Bike Division $fill in the blank f534b407a016015_8 4. On the basis of income from operations, the Division is the more profitable of the two divisions. However, income from operations consider the amount of invested assets in each division. On the basis of residual income, the Division is the more profitable of the two divisions.

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter14: Decentralized Operations

Section: Chapter Questions

Problem 14.5.1P

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Question

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	$ 3,190,000		$ 3,360,000
Cost of goods sold	1,404,000		1,579,000
Operating expenses	1,275,600		1,344,200
Invested assets	2,900,000		2,400,000

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	$fill in the blank 747434fe2fcbfee_1	$fill in the blank 747434fe2fcbfee_2
Cost of goods sold	fill in the blank 747434fe2fcbfee_3	fill in the blank 747434fe2fcbfee_4
Gross profit	$fill in the blank 747434fe2fcbfee_5	$fill in the blank 747434fe2fcbfee_6
Operating expenses	fill in the blank 747434fe2fcbfee_7	fill in the blank 747434fe2fcbfee_8
Income from operations	$fill in the blank 747434fe2fcbfee_9	$fill in the blank 747434fe2fcbfee_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 f534b407a016015_1%	fill in the blank f534b407a016015_2	fill in the blank f534b407a016015_3%
Mountain Bike Division	fill in the blank f534b407a016015_4%	fill in the blank f534b407a016015_5	fill in the blank f534b407a016015_6%

3. If management desires a minimum acceptable return of 16%, determine the residual income for each division. If required, use the minus sign to indicate a negative income.

Division	Residual Income
Road Bike Division	$fill in the blank f534b407a016015_7
Mountain Bike Division	$fill in the blank f534b407a016015_8

4. On the basis of income from operations, the Division is the more profitable of the two divisions. However, income from operations consider the amount of invested assets in each division. On the basis of residual income, the Division is the more profitable of the two divisions.

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