Problem Set B

LO 9.3Use the following information to answer the questions that follow.

1. Calculate the operating income percentage for each of the stores. Comment on how your analysis has changed for each store.
2. Perform a vertical analysis for each store. Based on your analysis, what accounts would you want to investigate further? How might management utilize this information?
3. Which method of analysis (using a dollar value or percentage) is most relevant and/or useful? Explain.

LO 9.3Use Kellogg’s 2017 annual report to answer the following questions.

1. Using the information for Kellogg, calculate the operating profit percentage for each of the divisions. Comment on how your analysis has changed compared to your analysis of the dollar amounts for each division.
2. Using total assets as the investment, calculate the ROI for each division. In the total assets information you compile, you should ignore corporate and elimination entries amounts and you will also need to combine the U.S. divisions into a North American total. Comment on the results.
3. Assume that Kellogg uses a cost of capital of 10%. Calculate the RI for each of the divisions (you will need to condense the U.S. divisions into a North American total). Comment on the results.

LO 9.3The income statement comparison for Rush Delivery Company shows the income statement for the current and prior year.

1. Determine the operating income (loss) (dollars) for each year.
2. Determine the operating income (percentage) for each year.
3. 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 ROI. Was the decision to invest additional assets in the company successful? Explain.
4. Assuming an 8% cost of capital, calculate the RI for each year. Explain how this compares to your findings in part C.

LO 9.3Assume you are the manager for the semi-trucks division at the Speedy Delivery Company. The semi-truck division is a cost center and you are reviewing the driver overtime costs for the previous year, shown here:

1. Microsoft Excel or another spreadsheet application, create a line chart with markers showing the driver overtime expense. Describe your observations.
2. Knowing that safety is important in your industry and weather plays a significant role in the safety of drivers, you decide to talk with the safety manager and obtained the following information:

Using Microsoft Excel or another spreadsheet application, create individual line charts with markers showing the average snowfall and non-company highway accidents. Describe your observations and actions you might consider.

LO 9.4Financial information for Lighthizer Trading Company for the fiscal year-ended September 30, 20xx, was collected. As part of a management training session, you have been asked to prepare an income statement format that will be used to distribute to management. Subtotals and totals are included in the information, but you will need to calculate the values.

1. In the correct format, prepare the income statement using this information:
2. Calculate the profit margin, return on investment, and residual income. Assume an investment base of $42,000 and 8% cost of capital.
3. Prepare a short response to accompany the income statement that explains why uncontrollable costs are included in the income statement.

LO 9.4Using the information for Lighthizer Trading Company, prepare the income statement to include all costs, but separate out uncontrollable costs. Insert subtotals where appropriate (include one for operating income) before the uncontrollable costs. Income tax expense should be based on all expenses (that is, it will be the same amount as in the previous exercise). Calculate net income, profit margin, ROI, and RI excluding uncontrollable expenses. Prepare a short response to accompany the income statement that explains why uncontrollable costs are separated in the income statement.

LO 9.4Management of Green Peak Tea Company has asked you, the controller, to develop a transfer pricing system for the company. The Brewing Department of the company sells all of its product to the Bottling Department of the company. Thus the Brewing Department’s sales become the Bottling Department’s cost of goods sold. In order to determine an optimal transfer pricing system, management would like you to demonstrate what an income statement would look like under a cost, market, and negotiated transfer pricing structure. These various transfer prices are listed as follows. Prepare an income statement for each of the transfer prices by filling in the missing numbers in the provided income statement based on each transfer price (thus four different income statements) and calculate the operating income/loss percentage. Prepare a brief summary of the results.

LO 9.4The following revenue data were taken from the December 31, 2017, General Electric annual report (10-K):

For each segment and each year, calculate intersegment sales (another name for transfer sales) as a percentage of total sales. Using Microsoft Excel or another spreadsheet application, create a clustered column graph to show the 2016 and 2017 percentages for each division. Comment on your observations of this data. How might a division sales manager use this data?