PA3.

LO 9.3The income statement comparison for Forklift Material Handling shows the income statement for the current and prior year.

1. Determine the operating income (loss) (dollars) for each year.
2. Determine the operating income (percentage) for each year.
3. 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? Explain.
4. Assuming an 8% cost of capital, calculate the residual income for each year. Explain how this compares to your findings in part C.

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