Part 1:

The Trolley Tay Company manufactures toy building block sets for children. Trolley is planning for 2019 by developing a master budget by quarters. Trolley's balance sheet for December 31, 2018, follows:

TROLLEY TOY COMPANY Balance Sheet

December 31, 2018

Assets

Current Assets

Cash

Accounts Receivable

Raw Materials Inventory

Finished Goods Inventory

Total Current Assets

Property, Plant, and Equipment:

Equipment

Less: Accumulated Depreciation

Total Assets

S SIL000

22,000

1,200

5,400

$ 86,600

142,000

147,000)

Liabilities

95.000

5 181,600

Current Liabilities

Accounts Payable

$ 8,000

Stockholders' Equity

Common Stock, no par

$ 120,000

Retained Earnings

51,600

Total Stockholders Equity

173,600

$ 181,600

Total Liabilities and Stockholders Equity

Other budget data for Trolley Toy Company.

Budgeted sales are 1,400 sets for the first quarter and expected to increase by 150 sets per quarter. Cash sales are expected to be 30% of total sales, with the remaining 70% of sales on account. Sets are budgeted to sell for $90 per set.

b. Finished Goods Inventory on December 31, 2018, consists of 200 sets at $27 each.

Desired ending Finished Goods Inventory is 40% of the next quarter's sales, first quarter sales for 2020 are expected to be 2,000 sets

d. Raw Materials Inventory on December 31, 2018, consists of 600 pounds. Direct materials requirement is 3 pounds per set. The cost is 52 per pound.

Desired ending Raw Materials Inventory is 10% of the next quarter's direct materials needed for production; indirect materials are insignificant and not considered for budgeting purposes.

f. Each set requires 0.30 hours of direct labor, direct labor costs average $12 per hour.

Variable manufacturing overhead is 53.60 per set

Fixed manufacturing overhead includes $7,000 per quarter in depreciation and 52,585 per quarter for other costs, such as utilities, insurance, and property taxes.

Fixed selling and administrative expenses include $11,000 per quarter for salaries: $1,500 per quarter for rent, $1,350 per quarter for insurance; and $1.500 per quarter for depreciation.

Variable selling and administrative expenses include supplies at 2% of sales.

Trolley sold 7,000 sets in 2019, and its actual operating income was as follows:

TROLLEY TOY COMPANY

Income Statement For the Year Ended December 31, 2019

Net Sales Revenuar

Cost of Goods Sold

Variable

Fixed

Gross Profit

Selling and Administrative Expenses Variable

Fixed

Operating Income

Other Income and (Expenses)

Interest Expense

Income Before Income Taxes

Income Tax Expense

Net Income

$630,000

354.890

36540

131,430

438 570

12,400

41,400

34,000

424,570

(425)

404.145

22,000

$402.145

Variable

Fixed

Total

Static budget

Flexible budget

$84,240 $38.340 $122,580

93,940 38,340 132.290

Requirements:

1. budget level of sales?

What was the effect on Trolley's operating income of selling 500 sets more than the static

2. What is Trolley's static budget variance for operating income?

3. During 2019, Trolley recorded the following cost data

Standard Cost Information

Direct materials

Direct labor

Variabile manufacturing overhead

Fixed manufacturing overhead Static budget amount: $38,340

Actual Cost Information.

Direct materials

Quantity

Cost

3 pounds per set

0.30 hours per set 0.30 hours per set

$ 2.00 per pound

$12.00 per hour $ 12.00 per hour

0.30 hours per set 5 21.00 per hour

Direct labor

(20,700 pounds $2.50 per pound

12,060 hours @$12.40 per hour)

$51,750

25.544

Variable manufacturing overhead

2,060 hours $11.50 per hour)

23.096

Fixed manufacturing overhead

36.540

Calculate Trolley's ROI for 2019. To calculate average total assets, use the December 31, 2018,

balance sheet for the beginning balance and the budgeted balance sheet for December 31, 2019, for the ending balance. Round all of your answers to four decimal places.

4.

Calculate Trolley's profit margin ratio for 2019. Interpret your results.

5. Calculate Trolley's asset turnover ratio for 2019. interpret your results.

6. Use the expanded ROI formula to confirm your results from Requirement 6. Interpret your results

7. Trolley's management has specified a 30% tanget rate of return. Calculate Trolley's Residual Income for 2019. Interpret your results