proposals would meet the required 12% return on investment?
profit margin, investment turnover, and return
Chapter 14 Decentralized Operations
5. If the Jet Ski Division were in an industry where the profit margin could not be increased,
how much would the investment turnover have to increase to meet the president's required
12% return on investment?
P14-5 Divisional performance analysis and evaluation
The vice president of operations of Moab Bike Company is evaluating the performance
of two divisions organized as investment centers. Invested assets and condensed income
statement data for the past year ending October 31, 20Y9, for each division are as follows:
Touring Bike Division
Trail Bike Division
Sales
$1,500,000
$5,400,000
Cost of goods sold
900,000
4,000,000
Operating expenses
495,000
968,000
Invested assets
750,000
3,600,000
Instructions
1. Prepare condensed divisional income statements for the year ended October 31, 20Y9, as-
suming that there were no service department charges.
2. Using the DuPont formula, determine the profit margin, investment turnover, and return
on investment for each division.
3. If management desires a minimum acceptable rate of return of 10%, 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).
detone GPS
643
Obj. 4
2. Touring
Bike Division
ROI, 14.0%
