¶ … fixed costs that Cat and Dogs, Inc. have include rent and executive salaries, which are paid no matter how many units the company builds. The company's total fixed costs are $113,200 per month. Variable costs are the factory labor and raw materials, which are $2.20 per unit ($1.50 labor plus $.70 raw materials). The company's gross profit margin per unit is 72.5%, calculated as $5.80 ($8.00 per unit sales price less $2.20 per unit cost to manufacture) divided by $8.00. The sales necessary to break even are $156,137.93. At $8 per unit, this works out to be 19,518 units, rounded, since it's not possible to make a partial unit. The following table describes the income and expenses expected by Cats and Dogs, Inc. If they sell 19,518 units:
Income (19,518 $8 units)
$156,144.00
Variable Expenses (19,518 $2.20 units)
$42,939.60
Fixed Expenses
$113,200.00
Profit (or Loss)
$4.40
Prepare an income statement.
Athens Corporation
Income Statement
For the Year Ended December 31, 2003
Revenue:
Gross Sales
$2,000,000.00
Less Cost of Goods Sold
$1,100,000.00
Gross Profit (Loss)
$900,000.00
Expenses:
Depreciation
$125,000.00
Interest
$43,800.00
Selling and Administrative
$200,000.00
Total Expenses
$368,800.00
Net Income (Loss) Before Taxes
$531,200.00
Less Taxes (40%)
$212,480.00
Net Income (Loss) After Taxes
$318,720.00
3. Calculate the following:
a) Sales
Profit Margin = Net Income / Sales
12% = $90,000 / X
Sales = $750,000
b) Total Assets
Return on Assets = Net Income / Total Assets
20% = $90,000 / X
Total Assets = $450,000
c) Total Asset Turnover
Total Asset Turnover = Net Sales / Total Assets
X = $750,000 / $450,000
Total Asset Turnover = 166%
d) Total Debt
Debt to Assets Ratio = Total Debt / Total Assets
55% = X / $450,000
Total Debt = $247,500
e) Stockholders Equity
Stockholders Equity = Total Assets -- Total Liabilities
X = $450,000 - $247,500
Stockholders Equity = $202,500
f) Return on Equity
Return on Equity = Net Income / Shareholders Equity
X = $90,000 / $202,500
Return on Equity = 44%
4. If we divide users of financial ratios into short-term lenders, long-term lenders, and stockholders, which ratios would each group be most...
Because time is of the essence for these payments, these lenders are interested in the company's profit margin and earning power. These show the company's ability to use the firm's assets to generate earnings independent of the financing mix.
Long-term lenders are interested with the long-term viability of the business. In order to help them determine this, the profitability ratios and gearing rations of the business are also of interest. These lenders are also interested in whether or not their loans and interest will be paid when due, but because these payments are due over a longer period of time, they are concerned with the long-term viability of the business. Total assets, total asset turnover and total debt all tell the long-term lender how well the company is managing earnings in relation to debt and equity used to finance it.
Shareholders are interested in their returns in relation to the amount of risk associated with their investment. Return on equity and stockholders equity tell how much the company is earning on funds contributed by stockholders after all expenses, including interest, have been met. In addition, shareholders are also interested in earnings per common share, dividends per common share, and the payout rate.
5. a) Prepare a monthly schedule for cash receipts for April through June.
April
May
June
Cash Sales
$7,500.00
$9,500.00
$11,000.00
Collections on Accounts Receivable
$59,400.00
$65,700.00
$78,300.00
Total Cash Receipts
$66,900.00
$75,200.00
$89,300.00
b) What is the balance of Receivables at the end of June?
The receivables balance at the end of June is $133,200, as shown in the table below.
April
May
June
Beginning Balance
$84,600.00
$92,700.00
$112,500.00
Sales on Credit
$67,500.00
$85,500.00
$99,000.00
Less Payments Made
$ (59,400.00)
$ (65,700.00)
$ (78,300.00)
Ending Balance
$92,700.00
$112,500.00
$133,200.00
6. Calculate the value of ending inventory for both companies and the cost of goods sold for both companies.
A Company's ending inventory, using LIFO inventory costing, is $2,050 and A Company's cost of goods sold is $4,550. Z Company's ending inventory, using FIFO inventory costing, is $2,350 and Z. Company's cost of goods sold is $4,250. The table below shows how each of these…
