The vice president of operations of Free Ride Bike Company is evaluating the performance of two divisions organized as i

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The Vice President Of Operations Of Free Ride Bike Company Is Evaluating The Performance Of Two Divisions Organized As I 1 (59.17 KiB) Viewed 21 times

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 $3,480,000 $3,780,000 Cost of goods sold 1,531,000 1,777,000 Operating expenses 1,287,800 1,360,400 Invested assets 2,900,000 2,700,000 Required: 1. Prepare condensed divisional income statements for the year ended December 31, 2017, assuming that there were no support department allocations. Free Ride Bike Company Divisional Income Statements For the Year Ended December 31, 2017 Road Bike Division Mountain Bike Division Sales Cost of goods sold Gross profit Operating expenses Operating income 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 % % Mountain Bike Division 0% % 3. If management desires a minimum acceptable rate of return of 16%, determine the residual income for each division. Residual Income Road Bike Division Mountain Bike Division consider the amount of invested 4. On the basis of operating income, the assets in each division. On the basis of residual income, the Division is the more profitable of the two divisions. However, operating income Division is the more profitable of the two divisions.