Using the information for Lighthizer Trading Company, prepare the income statement to include all costs, but separate out uncontrollable costs. Insert subtotals where appropriate (include one for operating income) before the uncontrollable costs. Income tax expense should be based on all expenses (that is, it will be the same amount as in the previous exercise). Calculate net income, profit margin, ROI, and RI excluding uncontrollable expenses. Prepare a short response to accompany the income statement that explains why uncontrollable costs are separated in the income statement.

Data from the previous exercise

Financial information for Lighthizer Trading Company for the fiscal year-ended September 30, 20xx, was collected. As part of a management training session, you have been asked to prepare an income statement format that will be used to distribute to management. Subtotals and totals are included in the information, but you will need to calculate the values.

A. In the correct format, prepare the income statement using this information:

B. Calculate the profit margin, return on investment, and residual income. Assume an investment base of $42,000 and 8% cost of capital.

C. Prepare a short response to accompany the income statement that explains why uncontrollable costs are included in the income statement.

Transcribed Image Text:

Pretax income Gross profit Allocated costs (uncontrollable) Labor expense Sales Research and development (uncontrollable) Depreciation expense Net income/(loss) Cost of goods sold Selling expense Total expenses Marketing costs (uncontrollable) Administrative expense Income tax expense (21% of pretax income) Other expenses ? ? $ 855 $17,464 $79,380 $ 132 $ 7,140 ? $50,009 $ 525 ? 332 290 ? 134 $ $ LA $