close solutoin list

Divisional performance analysis and evaluation The vice president of operations of Free Ride Hike 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 Instructions 1. Prepare condensed divisional income statements for the year ended December 31, 20Y7, assuming that there were no service department charges. 2. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each division. Round percentages and the investment turnover to one decimal place. 3. If management’s minimum acceptable return is 10%, determine the residual income for each division. 4. Discuss the evaluation of the two divisions, using the performance measures determined in parts (1), (2), and (3).

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 24, Problem 24.5BPR
Textbook Problem

Divisional performance analysis and evaluation

 The vice president of operations of Free Ride Hike 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

 Instructions

  1. 1. Prepare condensed divisional income statements for the year ended December 31, 20Y7, assuming that there were no service department charges.
  2. 2. Using the DuPont formula for    return on investment, determine the profit margin, investment turnover, and return on investment for each division. Round percentages and the investment turnover to one decimal place.
  3. 3. If management’s minimum acceptable return is 10%, determine the residual income for each division.
  4. 4. Discuss the evaluation of the two divisions, using the performance measures determined in parts (1), (2), and (3).

Expert Solution

Want to see this answer and more?

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

See solution

Chapter 24 Solutions

Accounting
Show all chapter solutions
Ch. 24 - Budgetary performance for cost center Caroline...Ch. 24 - Budgetary performance for cost center Conley...Ch. 24 - Service department charges The centralized...Ch. 24 - Service department charges The centralized...Ch. 24 - Income from operations for profit center Using the...Ch. 24 - Income from operations for profit center Using the...Ch. 24 - Profit margin, investment turnover, and ROI Cash...Ch. 24 - Profit margin, investment turnover and ROI Briggs...Ch. 24 - Residual income The Consumer Division of Galena...Ch. 24 - Residual income The Commercial Division of Herring...Ch. 24 - Transfer pricing The materials used by the North...Ch. 24 - Transfer pricing The materials used by the...Ch. 24 - Budget performance reports for cost centers...Ch. 24 - Divisional income statements The following data...Ch. 24 - Service department charges and activity bases For...Ch. 24 - Activity bases for service department charges For...Ch. 24 - Service department charges In divisional income...Ch. 24 - Service department charges and activity bases...Ch. 24 - Divisional income statements with service...Ch. 24 - Corrections to service department charges for a...Ch. 24 - Profit center responsibility reporting Glades...Ch. 24 - Return on investment The income from operations...Ch. 24 - Residual income Based on the data in Exercise...Ch. 24 - Determining missing items in return computation...Ch. 24 - Profit margin, investment turnover, and return on...Ch. 24 - Return on investment The Walt Disney Company has...Ch. 24 - Determining missing items in return and residual...Ch. 24 - Determining missing items from computations Data...Ch. 24 - Return on investment, residual income for a...Ch. 24 - Balanced scorecard for a service company American...Ch. 24 - Building a balanced scorecard Hit-n-Kun Inc. owns...Ch. 24 - Decision on transfer pricing Materials used by the...Ch. 24 - Decision on transfer pricing Based on T_Kong...Ch. 24 - Budget performance report for a cost center...Ch. 24 - Profit center responsibility reporting for a...Ch. 24 - Divisional income statements and return on...Ch. 24 - Effect of proposals on divisional performance A...Ch. 24 - Divisional performance analysis and evaluation The...Ch. 24 - Transfer pricing Garcon Inc. manufactures...Ch. 24 - Budget performance report for a cost center The...Ch. 24 - Profit center responsibility reporting for a...Ch. 24 - Divisional income statements and return on...Ch. 24 - Effect of proposals on divisional performance A...Ch. 24 - Divisional performance analysis and evaluation The...Ch. 24 - Transfer pricing Exoplex Industries Inc. is a...Ch. 24 - Ethics in Action Sembotix Company has several...Ch. 24 - Communication The Norsk Division of Gridiron...Ch. 24 - Service department charges The Customer Service...Ch. 24 - Evaluating divisional performance The three...Ch. 24 - Evaluating division performance Last Resort...

Additional Business Textbook Solutions

Find more solutions based on key concepts
Show solutions
What are value-added activities? Value-added costs?

Managerial Accounting: The Cornerstone of Business Decision-Making

Post the following entry to the general ledger and the subsidiary ledger.

College Accounting (Book Only): A Career Approach

What is the purpose of a range check?

Accounting Information Systems

TIE AND ROIC RATIOS The H.R. Pickett Corp. has 500,000 of interest-bearing debt out-standing, and it pays an an...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

What role do past costs play in tactical cost analysis?

Cornerstones of Cost Management (Cornerstones Series)

Is savings harmful or beneficial to the economy? Contrast the two views on this issue.

Macroeconomics: Private and Public Choice (MindTap Course List)