# Sales 196700 10 less cost of goods sold 196700 690

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Unformatted text preview: (196,700 × \$10) Less: Cost of goods sold (196,700 × \$6.90) Gross margin Less: Selling and administrative expenses Absorption costing operating income \$ 1,967,000 1,357,230 \$ 609,770 129,010 \$ 480,760 Sales Less variable expenses: Variable cost of goods sold Variable selling and administrative Contribution margin Less fixed expenses: Fixed overhead Fixed selling and administrative Variable costing operating income 4. \$1,967,000 IA – IV \$480,760 – \$477,790 \$2,970 \$2,970 1,180,200 59,010 \$ 727,790 \$ 180,000 70,000 477,790 = FOR(Sales – Production) = \$0.90(200,000 – 196,700) = \$0.90(3,300) = \$2,970 10–22 1. Air conditioner, ROI = \$67,500/\$750,000 = 9.0% Turbocharger, ROI = \$89,700/\$690,000 = 13.0% 2. Income Assets ROI With Air Conditioner \$3,246,500 \$29,650,000 10.95% With Turbocharger \$3,268,700 \$29,590,000 11.05% With Both Investments \$3,336,200 \$30,340,000 11.00% Neither Investment \$3,179,000 \$28,900,000 11.00% The manager will choose the turbocharger, but not the air conditioner. 3. Cost of capital = (1 – 0.25)(0.12)(\$1,500,000) = \$135,000 EVA = (\$67,500 + \$89,700) – \$135,000 = \$22,200 Yes, the two investments increase the wealth of the division, since EVA is positive. 336 10–23 1. \$310,000/\$3,000,000 = 10.33%* 2. Margin: \$310,000/\$3,450,000 = 8.99% Turnover: \$3,450,000/\$3,000,000 = 1.15 ROI = 1.15 × 8.99% = 10.34% *Difference due to rounding. 3. (\$310,000 + \$57,500)/(\$3,000,000 + \$500,000*) = 10.5% *(\$600,000 + \$400,000)/2 The manager will approve the investment. 4. Margin: (\$310,000 + \$57,500)/(\$3,450,000 + \$575,000) = 9.13% Turnover: (\$3,450,000 + \$575,000)/(\$3,000,000 + \$500,000) = 1.15 The margin has increased, and the turnover ratio has stayed the same. 5. With: (\$310,000 + \$57,500)/(\$3,000,000 + \$500,000 – \$800,000) = 13.61% Without: \$310,000/(\$3,000,000 – \$800,000) = 14.09% The manager will most likely reject the investment because it lowers the divisional ROI. The investment should be accepted because it increases total profits. 6. Ma...
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