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Unformatted text preview: 1. RUCKER-PUTNAM BIKE COMPANY Divisional Income Statements For the Year Ended December 31, 2010 Sales $2,800,000 $2,950,000 Cost of goods sold 1,240,000 1,375,000 Gross profit $1,560,000 $1,575,000 Operating expenses 1,168,000 1,073,500 Income from operations $392,000 $501,500 2. Rate of return on = Profit margin x Investment turnover investment (ROI) Rate of return on = Income from Operations x Sales investment (ROI) Sales Invested Assets Touring Bike Division: ROI = $392,000 x $2,800,000 = 24.5% $2,800,000 $1,600,000 Off-Road Bike Division: ROI = $501,500 x $2,950,000 = 17.0% $2,950,000 $2,950,000 3. Touring Bike Division residual income: $104,000 Off-Road Bike Division residual income: ($29,500) 4. Instructions Touring Bike Division Off-Road Bike Division Because of differences in asset turnover ratios, the two divisions should be evaluated on the basis of residual income rather than ROI....
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- Winter '08
- Accounting, Bike Company, Bike Division, Off-Road Bike, Division residual income