Cost Accounting question. 23.19. Please answer step by step ROI and RI with manu
ID: 2479506 • Letter: C
Question
Cost Accounting question.
23.19. Please answer step by step
ROI and RI with manufacturing costs. Fabulous Motor Company makes electric cars and has two products. the Simplegreen and the Fabulousgreen. To produce the Simplegreen. Fabulous Motor employed assets of S24.500,000 at the beginning of the period and S30.000.000 of assets at the end of the period. Other costs to manufacture the Simplegreen include the following: General administration and selling costs total $8.940.000 for the penod. In the current period. Fabulous Motor produced 9,000 Simplegreen cars using 7.000 setup-hours and 176,500 machine-hours. Fabulous Motor sold these cars for $13.000 each. 1. Assuming that Fabulous Motor defines investment as average assets during the period, what is tfie return on investment for the Simplegreen division? 2. Calculate the residual income for Simplegreen if Fabulous Motor has a required rate of return of 8% oninvesments.Explanation / Answer
Sales (9000 x 13000) = 117,000,000
less:
Direct material (1000 x 9000) 9000000
Gen. S & A exp 8940000
Set up costs (7000 x 1600) 11200000
Production Costs (176500 x 470) 82955000
Net Income 4905000
Average Assets (Investment = (24500000 + 30000000) / 2 = 27250000
ROI = Net Income/Average Asstes = 4905000/27250000 = 18%
Residual Income = Net income - (Rate of return x Average Assets)
Residual Income = 4905000 - (8% x 27250000) = 2725000