Homework SourseDivisional Performance Analysis and Evaluation The vice pres
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:
Required:
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 rate of return on investment for each division. If required, round your answers to one decimal place.
3. If management desires a minimum acceptable rate of return of 18%, determine the residual income for each division. If required, use the minus sign to indicate a negative income.
4. On the basis of income from operations, the (road or mountain bike) Division is the more profitable of the two divisions. However, income from operations (does or does not) consider the amount of invested assets in each division. On the basis of residual income, the (road or mountain bike) Division is the more profitable of the two divisions.
| Road Bike Division | Mountain Bike Division | |||
| Sales | $ 2,860,000 | $ 2,990,000 | ||
| Cost of goods sold | 1,258,000 | 1,405,000 | ||
| Operating expenses | 1,115,800 | 1,016,900 | ||
| Invested assets | 2,600,000 | 2,300,000 |
Solution
2.
3.
4.
On the basis of income from operation road bike division is profitable. Income from operation doesnot consider amount invested in assets
On the basis of residual income mountain bike division is profitable.
| Particulars | road bike division | mountain bike vision |
| Sales | 2860000 | 2990000 |
| Cost of goods sold | 1258000 | 1505000 |
| Gross profit | 1602000 | 1485000 |
| Operating expenses | 1115800 | 1016900 |
| Income from operation s | 486200 | 468100 |
