The vice president of operations of Cantor bike Company is evaluating the performance of two division organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows:

Instructions

1. Prepare condensed divisional income statement for the year ended December 31, 2012 assuming that there were no service department charges.

2. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment for each division.

3. If management’s minimum acceptable rate of return of 16%, 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)

Transcribed Image Text:

Road Bike Division Mountain Bike Division Sales $1,210,000 $1,440,000 Cost of goods sold Operating expenses Invested assets 895,000 1,150,000 194,000 74,000 1,200,000 550,000