Managerial Accounting: Creating Value in a Dynamic Business Environment
11th Edition
ISBN: 9781259569562
Author: Ronald W Hilton Proffesor Prof, David Platt
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 13, Problem 33E
1.
To determine
Calculate the sales margin, capital turnover and
2.
To determine
Calculate the total expenses that have to be reduced in order improve the return on investment (ROI) of the firm to 15%.
3.
To determine
Calculate the new sales margin and show how the new sales margin would affect return on investment of Company B.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The following data pertain to British Isles Aggregates Company, a producer of sand, gravel, and cement, for the year just ended.
Sales revenue .......................................................................................... £2,000,000Cost of goods sold .................................................................................. 1,100,000Operating expenses ................................................................................ 800,000Average invested capital ........................................................................ 1,000,000£ denotes the British pound sterling, the national monetary unit of Great Britain.
Required:1. Compute the company’s sales margin, capital turnover, and ROI.2. If the sales and average invested capital remain the same during the next year, to what level would total expenses have to be reduced in order to improve the firm’s ROI to 15 percent?3. Assume expenses are reduced, as calculated in requirement (2). Compute the firm’s new…
Europa Publications, Inc. specializes in reference books that keep abreast of the rapidly changing political and economic issues in Europe. The results of the company’s operations during the prior year are given in the following table. All units produced during the year were sold. (Ignore income taxes.)
Required:1. Prepare a traditional income statement and a contribution income statement for the company.2. What is the firm’s operating leverage for the sales volume generated during the prior year?3. Suppose sales revenue increases by 10 percent. What will be the percentage increase in net income?4. Which income statement would an operating manager use to answer requirement (3)? Why?
Jiang Ltd has recently produced its financial statements for the current year. The directors of the company are concerned that the return on capital employed (ROCE) has decreased from 14% last year to 12% for the current year.The following reasons were suggested as to why this reduction in ROCE has occurred.
an increase in the gross profit margin
a reduction in sales revenue
an increase in overhead expenses
an increase in amount of inventories held
the repayment of a loan at the end of the year
an increase in time taken for trade receivables to be paid
Taking each of these 6 suggested reasons in turn, state, with reasons, whether each of them could lead to a reduction in ROCE
ROCE = (EBIT/Sales Revenue) x (Sales revenue/Long term capital)
Chapter 13 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. 13 - What is the managerial accountants primary...Ch. 13 - Define goal congruence, and explain why it is...Ch. 13 - Describe the managerial approach known as...Ch. 13 - Prob. 4RQCh. 13 - Prob. 5RQCh. 13 - Prob. 6RQCh. 13 - Create an example showing how residual income is...Ch. 13 - What is the chief disadvantage of ROI as an...Ch. 13 - Why is there typically a rise in ROI or residual...Ch. 13 - Define the term economic value added. How does it...
Ch. 13 - Distinguish between the following measures of...Ch. 13 - Why do some companies use gross book value instead...Ch. 13 - Explain why it is important in performance...Ch. 13 - How do organizations use pay for performance to...Ch. 13 - Describe an alternative to using ROI or residual...Ch. 13 - Prob. 16RQCh. 13 - Prob. 17RQCh. 13 - Discuss the importance of nonfinancial information...Ch. 13 - Identify and explain the managerial accountants...Ch. 13 - Describe four methods by which transfer prices may...Ch. 13 - Explain the significance of excess capacity in the...Ch. 13 - Why might income-tax laws affect the...Ch. 13 - Prob. 23RQCh. 13 - The following data pertain to Dakota Divisions...Ch. 13 - Refer to the preceding exercise. Requited:...Ch. 13 - Refer to the data for Exercise 1324. Assume that...Ch. 13 - Golden Gate Construction Associates, a real estate...Ch. 13 - Prob. 28ECh. 13 - Prob. 29ECh. 13 - Refer to Exhibit 133. Assume that you are a...Ch. 13 - Prob. 32ECh. 13 - Prob. 33ECh. 13 - Prob. 34ECh. 13 - Prob. 35ECh. 13 - Long Beach Pharmaceutical Company has two...Ch. 13 - Prob. 37PCh. 13 - Prob. 38PCh. 13 - Long Beach Pharmaceutical Company has two...Ch. 13 - Prob. 40PCh. 13 - Prob. 41PCh. 13 - Megatronics Corporation, a massive retailer of...Ch. 13 - Prob. 43PCh. 13 - Prob. 44PCh. 13 - Prob. 45PCh. 13 - Clearview Window Company manufactures windows for...Ch. 13 - Prob. 47PCh. 13 - Alpha Communications, Inc., which produces...Ch. 13 - Prob. 49PCh. 13 - Holiday Entertainment Corporation (HHC), a...Ch. 13 - InterGlobal Industries is a diversified...Ch. 13 - Prob. 52C
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- The income statement comparison for Rush Delivery Company shows the income statement for the current and prior year. A. Determine the operating income (loss) (dollars) for each year. B. Determine the operating income (percentage) for each year. C. The company made a strategic decision to invest in additional assets in the current year. These amounts are provided. Using the total assets amounts as the investment base, calculate the ROI. Was the decision to invest additional assets in the company successful? Explain. D. Assuming an 8% cost of capital, calculate the RI for each year. Explain how this compares to your findings in part C.arrow_forwardForchen, Inc., provided the following information for two of its divisions for last year: Required: 1. For the Small Appliances Division, calculate: a. Average operating assets b. Margin c. Turnover d. Return on investment (ROI) 2. For the Cleaning Products Division, calculate: a. Average operating assets b. Margin c. Turnover d. Return on investment (ROI) 3. What if operating income for the Small Appliances Division was 2,000,000? How would that affect average operating assets? Margin? Turnover? ROI? Calculate any changed ratios (round to four significant digits).arrow_forwardStrickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Stricklers sales last year were 3,250,000 (all on credit), and its net profit margin was 7%. Its inventory turnover was 6.0 times during the year, and its DSO was 41 days. Its annual cost of goods sold was 1,800,000. The firm had fixed assets totaling 535,000. Stricklers payables deferral period is 45 days. a. Calculate Stricklers cash conversion cycle. b. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. c. Suppose Stricklers managers believe the annual inventory turnover can be raised to 9 times without affecting sale or profit margins. What would Stricklers cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9 for the year?arrow_forward
- Sam & Sons management estimates that it takes the company 34 days on average to pay its suppliers. Management also knows that the company has days’ sales in inventory of 57 days and days’ sales outstanding of 35 days. How does Sam & Sons' cash conversion cycle compare with the industry average of 69 days? Sam & Sons' cash conversion cycle is_____ days Cash conversion cycle is (?) the industry average. The firm is (?) than other firms in the industry in managing its working capital.arrow_forwardRangoon Corp's sales last year were $400,000, and its year-end total assets were $300,000. The average firm in the industry has a total assets turnover ratio (TATO) of 2.5. The new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales. By how much must the assets be reduced to bring the TATO to the industry average?arrow_forwardJuniper Design Ltd. of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of £600,000 on sales of £3,000,000.The company’s average operating assets for the year were £2,800,000 and its minimum required rate ofreturn was 18%. (The currency used in England is the pound, denoted by £.)Required:Compute the company’s residual income for the yeararrow_forward
- Alyeska Services Company, a division of a major oil company, provides various services to the operators of the North Slope oil field in Alaska. Data concerning the most recent year appear below: Sales $ 17,900,000 Net operating income $ 5,200,000 Average operating assets $ 35,400,000 Required: Compute the margin. Note: Round your answer to 2 decimal places. Compute the turnover. Note: Round your answer to 2 decimal places. Compute the return on investment (ROI). Note: Round your intermediate calculations and final answer to 2 decimal places.arrow_forwardPlease show work and explain answer 9. A firm with sales of $1,000,000, net profits after taxes of $30,000, total assets of $1,500,000, and common stockholders' investment of $750,000 has a return on equity of ________. A) 20 percent B) 15 percent C) 3 percent D) 4 percent 10) The DuPont formula allows a firm to break down its return into the net profit margin, which measures the firm's profitability on sales, and its total asset turnover, which indicates how efficiently the firm has used its assets to generate sales. TRUE FALSEarrow_forwardThe following information relates to last year's operations at the Legumes Division of Gervani Corporation: Minimum required rate of return 7% Return on investment (ROI) 8.7% Sales $ 710,000 Turnover (on operating assets) 3 times What was the Legume Division's net operating income last year?arrow_forward
- The Manning Company has financial statements as shown next, which are representative of the company’s historical average. The firm is expecting a 30 percent increase in sales next year, and management is concerned about the company’s need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales. Income Statement Sales $ 200,000 Expenses 149,600 Earnings before interest and taxes $ 50,400 Interest 9,200 Earnings before taxes $ 41,200 Taxes 17,200 Earnings after taxes $ 24,000 Dividends $ 6,000 Balance Sheet Assets Liabilities and Stockholders' Equity Cash $ 6,000 Accounts payable $ 22,900 Accounts receivable 55,000 Accrued wages 2,300 Inventory 69,000 Accrued taxes 4,800 Current assets $ 130,000 Current liabilities $ 30,000 Fixed…arrow_forwardWie Corp's sales last year were $260,000, and its year-end total assets were $360,000. The average firm in the industry has a total assets turnover ratio (TATO) of 2.4. The firm's new CFO believes the firm has excess assets that can be sold to bring the TATO down to the industry average without affecting sales. By how much must the assets be reduced to bring the TATO to the industry average, holding sales constant? Do not round your intermediate calculations.arrow_forwardDuring the current year, Sokowski Manufacturing earned income of $292,400 from total sales of $4,300,000 and average capital assets of $10,000,000. A. Based on this information, calculate asset turnover. If required, round your answer to two decimal places. fill in the blank times B. Assume sales margin is 6.8%, what is the total ROI for the company during the current year?. If required, round your answer to one decimal place. fill in the blank %arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Economic Value Added EVA - ACCA APM Revision Lecture; Author: OpenTuition;https://www.youtube.com/watch?v=_3hpcMFHPIU;License: Standard Youtube License