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… 7- What is your advice to Tim Morrissey? Be specific and show your supporting analysis.
As they mention in the case the wood stove is a declining product with more than thirty competitors, so they need to offer better prices and excellent quality to be able to compete. Therefore, if the company decides to continue manufacturing stoves, they must find ways to reduce prices, do their best to reduce costs, and explore new markets. If this is not possible, then they should, as mentioned by Tim, “pull the plug” on stove and focus all they efforts on wood ovens.
Manufacturing Financial Statements
Manufacturing companies have several different accounts compared to service and merchandising companies. These include three types of inventory accounts—raw materials, work-in-process, and finished goods—and several long-term fixed asset accounts. A manufacturing company uses purchased raw materials and/or parts to produce a product for sale. At a point in time, the company's inventories consist of raw materials, those materials and parts waiting to be used in production; work-in-process, all material, labor, and other manufacturing costs accumulated to date for products not yet completed; and finished goods, the cost of completed products that are ready to be sold. The value of each type of inventory is disclosed in a company's financial statements. The amounts may be shown individually on the face of the balance sheet or disclosed in