The income statement for Forklift Electrical Ltd for two years are shown below:

Forklift Electrical Ltd

Income Statement Comparison

Current year Prior Year

(amounts in thousands)

Sales33,750$24,750

Cost of goods sold 21,93816,830

Gross profit

$11,812$7,920

Wages$ 8,775$6,188

Utilities675250

Repairs169325

Selling506200

Total expenses $10,125 $6,963

Total assets (investment base) $4,500$ 1,500

Required:

a) Determine the operating income (loss) (dollars) for each year. (1 mark)

b) The company made a strategic decision to invest in additional assets in the current year. These amounts are provided. Using the amounts of the total assets as the investment base, calculate the return on investment. (1 mark)

c) Was the decision to invest additional assets in the company successful? Explain. (1 mark)

d) Assuming an 8% cost of capital, calculate the residual income for each year. (2 marks)

e) Would the management of Forklift Electrical Ltd have been more likely to accept the investment opportunity if the residual income had been used as a performance measure

HI5017 Final Assessment T1 2021 (1).docx - Microsoft Word 10 X Home Insert Page Layout References Mailings Review View L Forklift Electrical Ltd Income Statement Comparison Current year Prior Year (amounts in thousands) 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 Total assets (investment base) $ 4,500 $ 1,500 HI5017 Final Assessment T1 2021 Page: 6 of 9 Words: 118/1,443 100% + e O 9 4 1:58 PM 6/17/2021