1- a. What is your estimate of the 1983 income statement and balance sheet?

Morrissey Forgings, Inc.
Balance Sheet 1983



b. What is your estimate of Return on Assets in 1983? (Assume a 40% tax rate.) How is the company doing in 1983? For simplicity, you may assume that individual price and cost components have not changed 1983 and 1985.

From the Income statement we have that profit before taxes equals to $1,790,000.00.

$1,790,000.00 * 40% (tax rate) = $716,000.00

Net income = Profit before taxes – Taxes = $1,790,000 - $716,000 = $1,074,000

Return on assets (ROA) = Net Income/Total Assets = $1,074,000/12,890,000 = 0.08= 8%

As we all know, the higher the ROA number, the better, because the company …show more content…

units)
$ 1,200,000.00

Labor and Benefits ($10/hr.)($50*30,000 units)
$ 1,500,000.00

Variable Overhead ($24*30,000 units)
$ 720,000.00

Fixed Overhead (40% of $2,520,000)
$ 1,008,000.00

Cost of good sold

$ (5,100,000.00)
Gross margin

$ 3,900,000.00
Selling Cost

$ (650,000.00)
Shipping Cost

$ (520,000.00)
Sales Commission (9,000,000*5%)

$ (450,000.00)
General Expenses ($245,000*2)

$ (490,000.00)
Profit before taxes

$ 1,790,000.00

Ovens (20,000 units)
Stoves (25,000 units)
Sales
$ 7,000,000.00
$ 7,500,000.00
Cost of good sold

Materials
$ 900,000.00
$ 1,000,000.00 Labor and Benefits ($10/hr.)
$ 1,100,000.00
$ 1,250,000.00 Variable Overhead
$ 480,000.00
$ 600,000.00 Fixed Overhead
$ 1,120,000.00
$ 1,400,000.00
Cost of good sold
$ (3,600,000.00)
$ (4,250,000.00)
Gross margin
$ 3,400,000.00
$ 3,250,000.00
Selling Cost
$ (1,500,000.00)
$ (1,625,000.00)
Shipping Cost (17% of sales)
$ (1,190,000.00)
$ (1,275,000.00)
Sales Commission (5% sales)
$ (350,000.00)
$ (375,000.00)
General Expenses
$ (245,000.00)
$ (245,000.00)
Profit/Loss