Question

11) Ashville Company has two divisions - Bikes and Trikes.

Ashville Company Segmented Income Statements For the Current Fiscal Year Ended December 31

Bikes Division Trikes Division

Sales $2,400,000 $1,000,000

Cost of goods sold 1,400,000 530,000

Gross margin 1,000,000 470,000

Allocated overhead (from corporate) 270,000 170,000

Selling and administrative expenses 190,000 140,000

Operating income 540,000 160,000

Income tax expense (40%) 216,000 64,000

Net income $324,000 $96,000

Use this Exhibit to answer questions 11, 12, 13 and 14

Refer to the Exhibit above. Using the segmented income statements, what is the profit margin ratio for the Bikes Division (to the nearest tenth of a percent)? (5pts)

a. 13.5%

b. 41.7%

c. 22.5%

d. 58.3%

e. None of the answer choices is correct.

12) Refer to the Exhibit in question 11 above. Using the segmented income statements, what is the profit margin ratio for the Trikes Division (to the nearest tenth of a percent)? (5pts)

a. 47%

b. 53%

c. 9.6%

d. 16.0%

e. None of the answer choices is correct.

13) Refer to Exhibit for question 11 above. Assume the Trikes Division has average operating assets totaling $400,000 for the year. What is the division's return on investment? (5pts)

a. 19.2% a. 19.2%

b. 40.0%

c. 90.0%

d. 24.0%

e. None of the answer choices is correct.

14) Refer to Exhibit 11 for question 11 above. Assume the Trikes Division has average operating assets totaling $400,000 for the year and the company's cost of capital rate is ten percent. What is the residual income for the Trikes division? (5pts)

a. $585,000

b. $1,380,000

c. $24,000

d. $120,000

e. None of the answer choices is correct.

Answer 1

Answer:-11)- Profit margin ratio for the Bikes Division=(Net Income/Sales)*100

=($324000/$2400000)*100 =13.5%

12)- Profit margin ratio for the Trikes Division=(Net Income/Sales)*100

=($96000/$1000000)*100 =9.6%

13)-Return on Investment of Trikes Division= (Net operating Income/Average operating assets)*100

=($160000/$400000)*100 =40%

13)- Residual income of Trikes Division = Net Operating income – (Average operating assets* Minimum required rate of return)

=$160000 – ($400000*10%)

=$160000-$40000

=$120000