Chapter 14 – P14-5 Divisional Performance Analysis andEvaluation
The vice president of operations of Montana Bike Company isevaluating the performance of two divisions organized as investmentcenters. Invested assets and condensed income statement data forthe past year for each division are as follows:
On-Road Bike Division
Off-Road Bike Division
Sales
$10,500,000
$8,000,000
Cost of goods sold
6,300,000
5,600,000
Operating expenses
2,940,000
1,560,000
Invested assets
7,500,00
5,000,000
Instructions
1. Prepare condensed divisional income statements for the yearended December 31, 20Y9, assuming that there were no servicedepartment charges.
2. Using the DuPont formula for rate of return on investment,determine the profit margin, investment turnover, and rate ofreturn on investment for each division.
3. If management desires a minimum acceptable rate of return of15%, determine the residual income for each division.
4. Discuss the evaluation of the two division, using theperformance measures determined in parts 1, 2, and 3.
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