2. Using the DuPont formula, determine the profit margin, investment turnover, andreturn on investment for each division. (Round to 2nd decimal places).3. If management desires a minimum acceptable rate of return of 8%, determine theresidual income for each division.4. Discuss the evaluation of the two divisions, using the performance measuresdetermined in parts (1), (2), and (3). The vice president of operations of Moab Bike Company is evaluating theperformance of two divisions organized as investment centers. Invested assets andcondensed income statement data for the past year ending October 31, 20Y9, foreach division are as follows:Touring Bike DivisionTrail Bike Division$1,500,000900,000495,000750,000SalesCost of goods soldOperating expensesInvested assetsInstructions1. Prepare condensed divisional income statements for the year ended October 31,20Y9, assuming that there were no service department charges.Touting Bike DivisionSales1,500,000Cost of Goods Sold (900,000)Gross Profit600,000Operating Expenses(495,000)Operating Income$5,400,0004,000,000968,0003,600,000105,000Trial Bike DivisionSales5,400,000Cost of Goods Sold (4,000,000)Gross Profit1.400,000Operating Expenses(968,000)Operating Income432,000

The equation for the basic DuPont model is calculated with the help of following formula Net profit…

2. Using the DuPont formula, determine the profit margin, investment turnover, and return on investment for each division. (Round to 2nd decimal places). 3. If management desires a minimum acceptable rate of return of 8%, 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).

2. Using the DuPont formula, determine the profit margin, investment turnover, and return on investment for each division. (Round to 2nd decimal places). 3. If management desires a minimum acceptable rate of return of 8%, 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).

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 11E: The operating income and the amount of invested assets in each division of Conley Industries are as...

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A-1. Evaluate the performance of the two divisions assuming BMI users return on investment (ROI). A-2. Which division had the better performance?
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Required: 1. Compute the ROI for each division. 2. Assume that the company evaluates performance by use of residual income and that the minimum required return for any division is 16 degrees. Compute the residual income for each division.
Exercise 10-12 Evaluating New Investments Using Return on Investment (ROI) and Residual Income (LO10-1, LO10-2] Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A $ 6,300,000 $ 1,260,000 340,200 Division B $ 10,300,000 $ 5,150,000 968,200 18.80% Division C $ 9,400,000 $ 1,880,000 24 Sales Average operating assets Net operating income Minimum required rate of return 2$ 249,100 20.00% 17.00% Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income (loss) for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 20% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity? b. If performance is being measured by residual income, which division or divisions will probably accept or…