Q17E - Horngren'S Financial And Managerial Accounting

Question

Selected data for three companies are given below. All inventory amounts are ending balances and all amounts are in millions.

Company A                                          Company B                                                Company C 

Cash \( 6                                               Wages Expense \) 12                            Administrative Expenses $ 4 

Net Sales Revenue 48                        Equipment 32                                      Cash 25 

Finished Goods Inventory 10          Accounts Receivable 8                        Net Sales Revenue 75 

Cost of Goods Sold 23                      Service Revenue 65                               Selling Expenses 8

 Selling Expenses 4                            Cash 34                                                  Merchandise Inventory 12 

 Equipment 67                                   Rent Expense 12                                   Equipment 55 

Work-in-Process Inventory 9                                                                          Accounts Receivable 19 

Accounts Receivable 14                                                                                   Cost of Goods Sold 25

Cost of Goods Manufactured 23 

Administrative Expenses 7 

Raw Materials Inventory 6

Identifying differences between service, merchandising, and manufacturing companies Using the data on the previous page, calculate operating income for each company.

Step-by-Step Solution

Answer

The net operating income of company A is $14, company B is $41 and company C is $38.

Step-by-Step Solution Step 1 : Company A

Calculation of Operating Income for Company A
	Amount ($)	Amount ($)
Net Sales		$48
Less Cost of goods sold		$23
Gross Profit		$25
Selling and administrative expenses
Selling Expense	$4
Administrative Expense	$7
Total selling and admin expense		$11
Operating Income		$14

Step 2 Company B

Calculation of Operating Income for Company B
	Amount ($)	Amount ($)
Service Revenue		$65
Less Wages		$12
Gross Profit		$53
Selling and administrative expenses
Rent Expense	$12
Total selling and admin expense		$12
Operating Income		$41

Step 3 Company C

Calculation of Operating Income for Company C
	Amount ($)	Amount ($)
Net Sales		$75
Less Cost of goods sold		$25
Gross Profit		$50
Selling and administrative expenses
Selling Expense	$8
Administrative Expense	$4
Total selling and admin expense		$12
Operating Income		$38