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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:

Line Item Description Road Bike

Division Mountain Bike

Division

Sales $$3,960,000$ $$4,200,000$

Cost of goods sold $1,742,0001,974,000$

Operating expenses $1,584,4001,638,000$

Invested assets $3,300,0003,000,000$

Required:

Question Content Area

$1.$ Prepare condensed divisional income statements for the year ended December $31,20$Y$7,$ assuming that there were no support department allocations.

Free Ride Bike Company

Divisional Income Statements

For the Year Ended December $31,20$Y$7$

Line Item Description Road Bike

Division Mountain Bike

Division

Sales $Sales $Sales

Cost of goods sold Cost of goods sold Cost of goods sold

Gross profit $Gross profit $Gross profit

Operating expenses Operating expenses Operating expenses

Operating income $Operating income $Operating income

Question Content Area

$2.$ 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 fill in the blank $1$ of $6\%$ fill in the blank $2$ of $6$ fill in the blank $3$ of $6\%$

Mountain Bike Division fill in the blank $4$ of $6\%$ fill in the blank $5$ of $6$ fill in the blank $6$ of $6\%$

$3.$ If management desires a minimum acceptable rate of return of $19\%,$ determine the residual income for each division.

Division Residual Income

Road Bike Division fill in the blank $1$ of $2$$

Mountain Bike Division fill in the blank $2$ of $2$$

$4.$ On the basis of operating income, the fill in the blank $1$ of $3$

Division is the more profitable of the two divisions. However, operating income fill in the blank $2$ of $3$

consider the amount of invested assets in each division. On the basis of residual income, the fill in the blank $3$ of $3$

Division is the more profitable of the two divisions.

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