Ch12HWSol(6th) - Chapter 12 HW Assignment: E12-4, 5, 6, 7,...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 12 HW Assignment: E12-4, 5, 6, 7, 11, 18; P12-6, 14, 21 Solutions E12-4 a. Co. A Co. B Sales $10,000 $10,000 Less: Fixed costs (4,000) (7,000) Variable costs (5,000 ) (2,000 ) Net income $ 1,000 $ 1,000 b. Operating leverage is the use of fixed costs to increase net income as sales increase. Both companies are using operating leverage because both companies use fixed costs. Company B uses the most operating leverage because fixed costs are a greater percentage of total costs. c. Co. A Co. B Sales $ 9,000 $ 9,000 Less: Fixed costs (4,000) (7,000) Variable costs (4,500 ) (1,800 ) Net income $ 500 $ 200 Co. A has the higher net income because it has lower fixed costs and its variable costs will decrease more than those of Co. B. d. Co. A Co. B Sales $11,000 $11,000 Less: Fixed costs (4,000) (7,000) Variable costs (5,500 ) (2,200 ) Net income $ 1,500 $ 1,800 Co. B has the higher net income because it has higher fixed costs and its variable costs will increase by less than those of Co. A. Chapter 12 HW Solutions Page 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
E12-5 Change in total assets from prior year 2004 2003 Sara Lee −0.04 0.13 Merck 0.05 −0.15 Sara Lee: Assets increased from 2002–2003 but declined from 2003–2004. Capital expenditures to total assets 2004 2003 2002 Sara Lee 0.04 0.05 0.05 Merck 0.04 0.05 0.04 Capital expenditures to total assets are remarkably similar for both companies. Both Sara Lee and Merck made capital expenditures of about 4–5% during all three years presented. Capital expenditures to depreciation and amortization 2004 2003 2002 Sara Lee 0.72 1.11 1.15 Merck 1.19 1.46 1.73 Both companies reported declining capital expenditures relative to depreciation expense during the periods reported. However, with the exception of 2004, both companies are replacing assets faster than they are depreciating them. Merck’s ratios are consistently larger than those of Sara Lee. Thus, Merck is replacing
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/04/2008 for the course ACC 310F taught by Professor Verduzco during the Spring '07 term at University of Texas at Austin.

Page1 / 5

Ch12HWSol(6th) - Chapter 12 HW Assignment: E12-4, 5, 6, 7,...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online