At the end of the fiscal year Zeta Tube performs an analysis comparing current year income statement to prior year income statement. 

 

The income statement comparison for Forklift Material Handling shows the income statement for the current and prior year.

A.  In dollars, calculate the operating income (loss) for each year. 

B.  Calculate the operating income (percentage) for each year.

 

(Amount in thousands)	Current Year		Prior Year
Sales	$      33,750		$     24,750
Cost of goods sold	$      21,938		$     16,830
Gross Profit	$      11,812		$        7,920
Wages	$        8,775		$        6,188
Utilities	$           675		$           250
Repairs	$           169		$           325
Selling	$           506		$           200
Total expenses	$      10,125		$        6,963
Operating income
Operating income %
Total assets (investment base)	$        4,500		$        1,500
Return on investment
Residual income (8% cost of capital)

C.  Zeta Tube has decided to upgrade their equipment in the current year (the difference in total assets from prior year to current year).

 Calculate the return on investment for these purchases.  Was the decision to invest in additional assets in the company successful?  Explain.

D.  Zeta Tube determines that an 8% cost of capital is appropriate. 

Calculate the residual income for prior and current year.  Explain how this compares to your findings in (C).