Forklift Electrical Ltd Income Statement Comparison Current year Prior Year ...
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Accounting
Forklift Electrical Ltd
Income Statement Comparison
Current yearPrior 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
The income statement for Forklift Electrical Ltd for two years are shown below:
Required:
a) Determine the operating income (loss) (dollars) for each year.
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.
c) Was the decision to invest additional assets in the company successful? Explain.
d) Assuming an 8% cost of capital, calculate the residual income for each year.
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 instead of ROI? Explain your answer.
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