Exercise 15-5 Financial Ratios for Assessing Profitability [LO15-5]
Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 920,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%, the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the company’s common stock at the end of this year was $24. All of the company’s sales are on account.
| Weller Corporation Comparative Balance Sheet (dollars in thousands) |
||||||
| This Year | Last Year | |||||
| Assets | ||||||
| Current assets: | ||||||
| Cash | $ | 2,772 | $ | 2,930 | ||
| Accounts receivable, net | 15,600 | 10,350 | ||||
| Inventory | 10,300 | 8,680 | ||||
| Prepaid expenses | 1,920 | 2,340 | ||||
| Total current assets | 30,592 | 24,300 | ||||
| Property and equipment: | ||||||
| Land | 7,200 | 7,200 | ||||
| Buildings and equipment, net | 20,400 | 20,200 | ||||
| Total property and equipment | 27,600 | 27,400 | ||||
| Total assets | $ | 58,192 | $ | 51,700 | ||
| Liabilities and Stockholders' Equity | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 10,700 | $ | 8,900 | ||
| Accrued liabilities | 840 | 1,300 | ||||
| Notes payable, short term | 420 | 420 | ||||
| Total current liabilities | 11,960 | 10,620 | ||||
| Long-term liabilities: | ||||||
| Bonds payable | 7,500 | 7,500 | ||||
| Total liabilities | 19,460 | 18,120 | ||||
| Stockholders' equity: | ||||||
| Common stock | 920 | 920 | ||||
| Additional paid-in capital | 4,800 | 4,800 | ||||
| Total paid-in capital | 5,720 | 5,720 | ||||
| Retained earnings | 33,012 | 27,860 | ||||
| Total stockholders' equity | 38,732 | 33,580 | ||||
| Total liabilities and stockholders' equity | $ | 58,192 | $ | 51,700 | ||
| Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands) |
||||||
| This Year | Last Year | |||||
| Sales | $ | 91,000 | $ | 86,000 | ||
| Cost of goods sold | 58,000 | 54,000 | ||||
| Gross margin | 33,000 | 32,000 | ||||
| Selling and administrative expenses: | ||||||
| Selling expenses | 9,700 | 9,200 | ||||
| Administrative expenses | 13,200 | 12,200 | ||||
| Total selling and administrative expenses | 22,900 | 21,400 | ||||
| Net operating income | 10,100 | 10,600 | ||||
| Interest expense | 900 | 900 | ||||
| Net income before taxes | 9,200 | 9,700 | ||||
| Income taxes | 3,680 | 3,880 | ||||
| Net income | 5,520 | 5,820 | ||||
| Dividends to common stockholders | 368 | 736 | ||||
| Net income added to retained earnings | 5,152 | 5,084 | ||||
| Beginning retained earnings | 27,860 | 22,776 | ||||
| Ending retained earnings | $ | 33,012 | $ | 27,860 | ||
Required:
Compute the following financial data for this year:
1. Gross margin percentage. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
2. Net profit margin percentage. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
3. Return on total assets. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)
4. Return on equity. (Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34).)
In: Accounting
Greenwood Company manufactures two products—13,000 units of Product Y and 5,000 units of Product Z. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Y and Z:
| Activity Cost Pool | Activity Measure | Estimated Overhead Cost | Expected Activity |
||||
| Machining | Machine-hours | $ | 231,600 | 12,000 | MHs | ||
| Machine setups | Number of setups | $ | 55,900 | 130 | setups | ||
| Production design | Number of products | $ | 77,000 | 2 | products | ||
| General factory | Direct labor-hours | $ | 364,500 | 15,000 | DLHs | ||
| Activity Measure | Product Y | Product Z | ||||
| Machining | 7,300 | 4,700 | ||||
| Number of setups | 40 | 90 | ||||
| Number of products | 1 | 1 | ||||
| Direct labor-hours | 7,300 | 7,700 | ||||
Using the ABC system, what percentage of the General Factory cost is assigned to Product Y and Product Z? (Round your intermediate calculations and final answers to 2 decimal places.)
In: Accounting
Sandy Bank, Inc., makes one model of wooden canoe. And, the
information for it follows:
| Number of canoes produced and sold | 450 | 650 | 800 | ||||
| Total costs | |||||||
| Variable costs | $ | 72,000 | $ | 104,000 | $ | 128,000 | |
| Fixed costs | $ | 187,200 | $ | 187,200 | $ | 187,200 | |
| Total costs | $ | 259,200 | $ | 291,200 | $ | 315,200 | |
| Cost per unit | |||||||
| Variable cost per unit | $ | 160.00 | $ | 160.00 | $ | 160.00 | |
| Fixed cost per unit | 416.00 | 288.00 | 234.00 | ||||
| Total cost per unit | $ | 576.00 | $ | 448.00 | $ | 394.00 | |
Required:
1. Suppose that Sandy Bank raises its selling price to
$500 per canoe. Calculate its new break-even point in units and in
sales dollars. (Do not round intermediate calculations.
Round your final answers to nearest whole number.)
2. If Sandy Bank sells 1,510 canoes, compute its
margin of safety in dollars and as a percentage of sales. (Use the
new sales price of $500.) (Round your answers to the
nearest whole number.)
3. Calculate the number of canoes that Sandy Bank
must sell at $500 each to generate $110,000 profit. (Round
your answer to the nearest whole number.)
In: Accounting
Nona Sports is considering the purchase of new production equipment. The equipment will cost $135,000. It has an expected useful of life of 5 years, but will require refurbishing at the end of 3 years. The refurbishment will cost $5,000. The estimated salvage value at the end of the useful life is $10,000. The increased annual net income from the equipment is projected to be $40,000. Using a hurdle rate of 12%, calculate the NPV for the equipment.
*If you get 101426.1, 11307 , or 11230 those are all incorrect*
Nona Sports can acquire a new machine for $43,500. The machine should generate new cash inflows of $15,000 per year for 4 years. No salvage value is projected. Calculate the IRR for the investment to 4 decimal places. Set your calculator to END.
*need to be percentage 14% is incorrect*
Nona Pizza Company is considering the purchase of a new pizza oven. The oven will cost $5,000. It will have zero residual value at the end of its useful life of 5 years. The energy efficient oven is projected to generate annual cost savings of $1,800 per year. Calculate the NPV of the pizza oven investment using a 10% hurdle rate.
*1823.42 is incorrect*
In: Accounting
Sandy Bank, Inc., makes one model of wooden canoe. And, the
information for it follows:
| Number of canoes produced and sold | 500 | 700 | 850 | ||||
| Total costs | |||||||
| Variable costs | $ | 92,500 | $ | 129,500 | $ | 157,250 | |
| Fixed costs | $ | 178,500 | $ | 178,500 | $ | 178,500 | |
| Total costs | $ | 271,000 | $ | 308,000 | $ | 335,750 | |
| Cost per unit | |||||||
| Variable cost per unit | $ | 185.00 | $ | 185.00 | $ | 185.00 | |
| Fixed cost per unit | 357.00 | 255.00 | 210.00 | ||||
| Total cost per unit | $ | 542.00 | $ | 440.00 | $ | 395.00 | |
Required:
1. Suppose that Sandy Bank raises its selling price to
$500 per canoe. Calculate its new break-even point in units and in
sales dollars. (Do not round intermediate calculations.
Round your final answers to nearest whole number.)
2. If Sandy Bank sells 1,560 canoes, compute its
margin of safety in dollars and as a percentage of sales. (Use the
new sales price of $500.) (Round your answers to the
nearest whole number.)
3. Calculate the number of canoes that Sandy Bank
must sell at $500 each to generate $120,000 profit. (Round
your answer to the nearest whole number.)
In: Accounting
create a model for a production cost report using the weighted average method for the month of May. Following good Excel design techniques, you should have an input area in which you put the department information for the month, and an output area that calculates the production cost report. As always, you should have only formulas or references in your output area. You should also include directions (in a text box) for users.
After completion of the production cost report using the weighted average method, create a new worksheet and label the tab “FIFO”. Create a production cost report using the same information using the FIFO method.
Department Data:
|
Information about units: |
|
|
Units in beginning WIP |
21,000 |
|
Started during the month |
240,000 |
|
Units in Ending WIP |
20,000 |
|
Percentage of Completion: |
|
|
Beginning Inventory: |
|
|
Direct materials |
40% |
|
Conversion |
70% |
|
Ending Inventory: |
|
|
Direct Materials |
30% |
|
Conversion |
60% |
|
Costs in Beginning WIP: |
|
|
Direct materials |
$210,000 |
|
Conversion |
$135,000 |
|
Costs incurred during the month: |
|
|
Direct Materials |
$1,150,000 |
|
Direct Labor |
$45,000 |
|
Overhead |
$605,000 |
In: Accounting
10. Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate; it will cost $22,000, whereas the gas-powered truck will cost $17,500. The cost of capital that applies to both investments is 12%. The life for both types of truck is estimated to be 6 years, during which time the net cash flows for the electric-powered truck will be $6,290 per year, and those for the gas-powered truck will be $5,000 per year. Annual net cash flows include depreciation expenses. Calculate the NPV and IRR for each type of truck, and decide which to recommend. Do not round intermediate calculations. Round the monetary values to the nearest dollar and percentage values to two decimal places.
|
Electric-powered |
Gas-powered |
||
|
NPV |
$__ |
$ __ |
|
|
IRR |
__ % |
__% |
The firm should purchase (select one) electric-powered or gas-powered forklift truck?
In: Finance
A shipping company believes that the variation in the cost of a customer’s shipment can be explained by differences in the weight of the package being shipped. To investigate whether this relationship is useful, a random sample of 20 customer shipments was selected, and the weight (in lb.) and the cost (in dollars, rounded) for each shipment were recorded. The following results were obtained:
|
Weight (lbs.) |
Cost (Dollars) |
|
8 |
11 |
|
6 |
8 |
|
5 |
11 |
|
7 |
11 |
|
12 |
17 |
|
9 |
11 |
|
17 |
27 |
|
13 |
16 |
|
8 |
9 |
|
18 |
25 |
|
17 |
21 |
|
17 |
24 |
|
10 |
16 |
|
20 |
24 |
|
9 |
21 |
|
5 |
10 |
|
13 |
21 |
|
6 |
16 |
|
6 |
11 |
|
12 |
20 |
a) Construct a scatter plot for these data. What, if any, relationship appears to exist between the two variables?
b) Compute the linear regression model based on the sample data. Interpret the slope and regression coefficients.
c) Test the significance of the overall regression model using a significance level of 0.05.
d) What percentage of the total variation in shipping cost can be explained by the regression model you developed in part b?
In: Statistics and Probability
Sandy Bank, Inc., makes one model of wooden canoe. And, the
information for it follows:
| Number of canoes produced and sold | 550 | 750 | 900 | ||||
| Total costs | |||||||
| Variable costs | $ | 112,750 | $ | 153,750 | $ | 184,500 | |
| Fixed costs | $ | 148,500 | $ | 148,500 | $ | 148,500 | |
| Total costs | $ | 261,250 | $ | 302,250 | $ | 333,000 | |
| Cost per unit | |||||||
| Variable cost per unit | $ | 205.00 | $ | 205.00 | $ | 205.00 | |
| Fixed cost per unit | 270.00 | 198.00 | 165.00 | ||||
| Total cost per unit | $ | 475.00 | $ | 403.00 | $ | 370.00 | |
Required:
Suppose that Sandy Bank raises its selling price to $500 per canoe.
Calculate its new break-even point in units and in sales dollars.
(Do not round intermediate calculations. Round your final
answers to nearest whole number.)
If Sandy Bank sells 1,600 canoes, compute its margin of safety in
dollars and as a percentage of sales. (Use the new sales price of
$500.) (Round your answers to the nearest whole
number.)
Calculate the number of canoes that Sandy Bank must sell at $500
each to generate $130,000 profit. (Round your answer to the
nearest whole number.)
In: Accounting
2-15
Greenwood Company manufactures two products—14,000 units of Product Y and 6,000 units of Product Z. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Y and Z:
| Activity Cost Pool | Activity Measure | Estimated Overhead Cost | Expected Activity |
||||
| Machining | Machine-hours | $ | 195,000 | 10,000 | MHs | ||
| Machine setups | Number of setups | $ | 67,500 | 150 | setups | ||
| Production design | Number of products | $ | 79,000 | 2 | products | ||
| General factory | Direct labor-hours | $ | 245,000 | 10,000 | DLHs | ||
| Activity Measure | Product Y | Product Z | ||||
| Machining | 7,500 | 2,500 | ||||
| Number of setups | 50 | 100 | ||||
| Number of products | 1 | 1 | ||||
| Direct labor-hours | 7,500 | 2,500 | ||||
Using the ABC system, what percentage of the General Factory cost is assigned to Product Y and Product Z? (Round your intermediate calculations and final answers to 2 decimal places.)
In: Accounting