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 $24,750 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) ? ? Determine the operating income (loss) (dollars) for each year. Determine the operating income (percentage) for each year. 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. Assuming an 8% cost of capital, calculate the residual income for each year. Explain how this compares to your findings in the previous question.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 $24,750
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) ? ?
  • Determine the operating income (loss) (dollars) for each year.
  • Determine the operating income (percentage) for each year.
  • 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.
  • Assuming an 8% cost of capital, calculate the residual income for each year. Explain how this compares to your findings in the previous question.
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