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    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

    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

    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.