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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Use the following information for Brief Exercises 11-13 through 11-15:

East Mullett Manufacturing earned operating income last year as shown in the following income statement:

Chapter 11, Problem 15BEA, Use the following information for Brief Exercises 11-13 through 11-15: East Mullett Manufacturing

At the beginning of the year, the value of operating assets was $1,600,000. At the end of the year, the value of operating assets was $1,400,000.

Calculating Economic value added

Refer to the information for East Mullett Manufacturing above. Total capital employed equaled $1,200,000. East Mullett’s actual cost of capital is 4%.

Required:

Calculate the EVA for East Mullett Manufacturing.

To determine

Compute EVA for E Manufacturing.

Explanation

Economic Value Added (EVA):

Economic value added can be computed by deducting the dollar amount of capital employed from the operating income after tax. The dollar amount of capital employed can be calculated by multiplying the capital employed by the percentage of the cost of capital.

Use the following formula to calculate the economic value added:

EVA=After tax operating income(Total capital employed×Actual percentage of cost of capital)

Substitute $180,000 for after-tax operating income, $1,200,000 for total capital employed and 4% for the actual percentage of the cost of capital in the above formula

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