The Verifine Department Stores Inc., chief executive officer (CEO) has asked you to compare the company’s profit performance………
The Verifine Department Stores Inc., chief executive officer (CEO) has asked you to compare the company’s profit performance and financial position with the average for the industry. The CEO has given you the company’s income statement and balance sheet as well as the industries average data for retailers.
Provided information
Verifine Department Stores, Inc.
Income Statement Compared with Industry Average
Year Ended December 31, 2010
Industry
Verifine Average
Net sales $780,000 100.0 %
Cost of goods sold 525,720 65.8
Gross profit 254,280 34.2
Operating expenses 162,240 19.7
Operating income 92,040 14.5
Other expenses 4,680 0.4
Net income $87,360 14.1 %
Verifine Department Stores, Inc.
Balance Sheet Compared with Industry Average
December 31, 2010
Industry
Verifine Average
Current assets $311,880 70.9 %
Fixed assets, net 115,920 23.6
Intangible assets, net 9,660 0.8
Other assets 22,540 4.7
Total assets $460,000 100.0 %
Current liabilities $215,280 48.1 %
Long?term liabilities 105,800 16.6
Stockholders’ equity 138,920 35.3
Total liabilities and stockholders’ equity $460,000 100.0 %
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Requirements
1. Prepare a common-size income statement and balance sheet for Verifine. The first column of each statement should present Verifine’s common-size statement, and the second column, the industry averages.
2. For the profitability analysis, compute Verifine’s (a) ratio of gross profit to net sales, (b) ratio of operating income to net sales, and (c) ratio of net income to net sales. Compare these figures with the industry averages. Is Verifine’s profit performance better or worse than the industry average?
3. For the analysis of financial position, compute Verifine’s (a) ratio of current assets to total assets and (b) ratio of stockholders’ equity to total assets. Compare these ratios with the industry averages. Is Verifine’s financial position better or worse than the industry averages?
14b.) Financial Statement Data of Modern Traveler Magazine include the following items (dollars in thousands)
Cash $18,000
Accounts receivable, net $81,000
Inventories $183,000
Total assets $635,000
Short?term notes payable $45,000
Accounts payable $104,000
Accrued liabilities $38,000
Long?term liabilities $223,000
Net income $70,000
Common shares outstanding 60,000
Requirements
1. Compute Modern Travelers current ratio, debt ratio and earnings per share. Round all ratios to 2 decimal places.
2. Compute the 3 ratios after evaluating the effect of each transaction as follows. Consider each transaction separately.
a. Purchased inventory of $44,000 on account.
b. Borrowed $124,000 on a long-term note payable.
c. Issued 6,000 shares of common stock, receiving cash of $108,000.
d. Received cash on account $4,000.
16a) Hummingbird design Inc. is a website design and consulting firm. The firm uses a job order costing system, in which each client is a different job. Hummingbird design traces direct labor, licensing costs, and travel costs directly to each job. It allocates indirect costs to jobs based on predetermined indirect cost allocation rate, computed as a percentage of direct labor costs.
Information Given
Direct labor hours (professional) 7,500 hrs
Direct labor costs (professional) $1,500,000
Support staff salaries 180,000
Computer leases 46,000
Office supplies 24,000
Office rent 65,000
Maynard
Delightful Dining Chocolates
Direct labor hours 730 hours 30 hours
Software licensing costs $2,100 $300
Travel costs 11,000 —
Requirements
1. Compute Hummingbird Design’s predetermined indirect cost allocation rate for 2011.
2. Compute the total cost of each job.
3. If Jacquin wants to earn profits equal to 20% of service revenue, how much (what fee) should it charge each of these 2 clients?
4. Why does Hummingbird design assign costs to jobs?
16b) Sloan manufacturing makes carrying cases for portable devices. It’s costing records yield the following information.
Information provided
Total
Total Manufacturing
Job Date Cost of Job Costs Added
No. Started Finished Sold at November 30 in December
1 11/3 11/12 11/13 $1,100
2 11/3 11/30 12/1 2,000
3 11/17 12/24 12/27 300 $1,300
4 11/29 12/29 1/3 800 1,300
5 12/8 12/12 12/14 650
6 12/23 1/6 1/9 100
Requirements
1. Which type of costing system is Sloan using? What piece of data did you base your answer on?
2. Using the dates provided to identify the status of each job, compute Sloans account balances at November 30 for work in process inventory, finished inventory and costs of goods sold. Compute account balances at December 31 for work in process inventory and cost of goods sold.
3. Record summary journal entries for the transfer of completed units from work in process to finished goods for November and December.
4. Record the sale of Job 3 for $1900.
5. What is the gross profit for Job 3? What other cost’s must this gross profit cover?
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