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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