Turnover Ratio & Break-Even/Margin of Safety
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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.
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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.
Education
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- MSc, University of Virginia
- PhD, Georgia State University
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