Ch 9 HW

Question 1

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Financial information for BDS Enterprises for the year-ended December 31, 20xx, was gathered from an accounting intern, who has asked for your guidance on how to prepare an income statement format that will be distributed to management. Subtotals and totals are included in the information, but you will need to calculate the values.

Pretax income	?
Gross profit	?
Allocated costs (uncontrollable)	$2,030
Labor expense	41,590
Sales	188,000
Research and development (uncontrollable)	310
Depreciation expense	18,000
Net income/(loss)	?
Cost of goods sold	118,440
Selling expense	1,250
Total expenses	?
Marketing costs (uncontrollable)	800
Administrative expense	680
Income tax expense (21% of pretax income)	?
Other expenses	320

Question 2

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

FORKLIFT MATERIAL HANDLING Income statement Comparison
	Current Year		Prior Year
(Amounts in thousands)
Sales	$33,750		$24,700
Cost of goods sold	21,937.5		16,796
Gross profit	$11,812.5		$7,904
Expenses:
Wages	$8,750		$6,189
Utilities	675		200
Repairs	168		325
Selling	507		300
Total Expenses	$10,100		$7,014
Operating income	?		?
Operating income %	?		?
Total assets (investment base)	$4,500		$1,400
Return on investment	?		?
Residual income (8% cost of capital)	?		?

A. Determine the operating income (loss) (dollars) for each year. If required round final answers to two decimal places.

	Current Year		Prior Year
Operating income (loss)	$fill in the blank 1		$fill in the blank 2

B. Determine the operating income (loss) (percentage) for each year. If required round final answers to two decimal places.

	Current Year		Prior Year
Operating income (loss)	fill in the blank 3%		fill in the blank 4%

c. The company made a strategic decision to invest in additional assets in the current year. These amounts are provided. Using the total assets amounts as the investment base, calculate the return on investment. Was the decision to invest additional assets in the company successful? If required round final answers to two decimal places.

	Current Year		Prior Year
Return on investment	%		%

Unsuccessful

D. Assuming an 8% cost of capital, calculate the residual income for each year. Do not round intermediate computations and round final answers to nearest whole dollar. For those boxes in which you must enter subtractive or negative numbers use a minus sign.

	Current Year		Prior Year
Residual income	$		$

The residual income related to the investment increase in the current year. This conflict ith the ROI results. Management should consider both methods in their analysis of the investment.

A. Prepare the income statement using the above information. Round your answers to the nearest dollar. BDS Enterprises Income Statement For the Year Ended Dec. 31, 20xx C. Which of the following statements is correct? Uncontrollable costs are included in the income statement because a. these costs ultimately affect each division. b. these costs are the responsibility of each division manager. c. these costs are non-recurring. d. these costs are head office's responsibility