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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Divisional performance analysis and evaluation

The vice president of operations of Moab Bike Company is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year ending October 31, 20Y9, for each division are as follows

Instructions

Discuss the evaluation of the two divisions, using the performance measures determined in parts (1). (2). and (3).

To determine

Concept Introduction:

Divisional income statement shows the Profit or Losses which the operating division generate during the accounting year after deducting cost of goods sold and operating expenses from the net revenue.

To Discuss:

The Performance of each Division

Explanation

The Performance of each Division is discussed as follows:

    Divisional Income Statement
    Touring Bike Division Trail Bike Division
    Sales $ 1,500,000 $ 5,400,000
    Less: Cost of goods sold $ (900,000) $ (4,000,000)
    Gross Profit $ 600,000 $ 1,400,000
    Less: Operating expenses $ (495,000) $ (968,000)
    Operating Income $ 105,000 $ 432,000
    DuPont Analysis
    Touring Bike Division Trail Bike Division
    Profit Margin 7...

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