# Turnover Ratio & Break-Even/Margin of Safety

There are two Experts I've had the pleasure working with (1 is you) and both of you explain these problems in a way I can understand them. So thank you for that!!

1. Adam Company offers two products. At present, the following represents the usual results of a month's operations:

Product K Product L

Per Unit Per Unit Combined

Sales revenue $120,000 $1.20 $80,000 $0.80 $200,000

Variable expenses 60,000 0.60 60,000 0.60 120,000

Contribution margin $60,000 $0.60 20,000 $0.20 80,000

Fixed expenses 50,000

Net operating income $30,000

Required:

A) Find the break-even point in dollars.

B) Find the margin of safety in dollars.

C) The company is considering decreasing product K's unit sales to 80,000 and increasing product L's unit sales to 180,000, leaving unchanged the selling price per unit, variable expense per unit, and total fixed

expenses. Would you advise adopting this plan?

D) Refer to (C) above. Under the new plan, find the break-even point in dollars.

E) Under the new plan in (C) above, find the margin of safety in dollars.

1. Gonzaba Inc. reported the following selected financial statement data:

Cash Dec 31, 2012 Dec 31, 2013

$30,000 $32,000

Accounts receivable (net) 48,000 52,000

Inventory 68,000 72,000

Plant assets (net) 210,000 218,000

Total assets 405,000 395,000

Liabilities 145,000 145,000

Shareholders' equity 260,000 250,000

Net sales 340,000 400,000

Cost of goods sold 220,000 280,000

Net income 20,000 25,000

Required:

A) Compute the receivables turnover ratio for 2013.

B) Compute the inventory turnover ratio for 2013.

C) Compute the asset turnover ratio for 2013.

D) Compute the return on shareholders' equity for 2013.

#### Solution Summary

Your tutorial shows the process to sort out these problems, including the numerator and denominator for the ratios requested. Each problem has a separate tab. Click in cells to see calculations.