Managerial Accounting (5th Edition)
5th Edition
ISBN: 9780134128528
Author: Karen W. Braun, Wendy M. Tietz
Publisher: PEARSON
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Chapter 10, Problem 10.22AE
1.
To determine
To calculate: Sales margin, capital turnover, and
2.
To determine
To calculate: Residual income for the E Corporation.
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E7-34A Compute margin of safety and operating leverage (Learning Objective 5)
Terry's Towing Service has a monthly target operating income of $30,000. Variable expenses
are 40% of sales, and monthly fixed expenses are $7,500.
Requirements
1. Compute the monthly margin of safety in dollars if the shop achieves its income goal.
2. Express Terry's margin of safety as a percentage of target sales.
3. What is Terry's operating leverage factor at the target level of operating income?
4. Assume that the company reaches its target. By what percentage will the company's
operating income fall if sales volume declines by 12%?
Learning Tasks
A. Discussion Questions:
1. Explain why a contribution margin per unit becomes profit per unit above the breakeven
point.
2. Suppose a firm with a contribution margin percentage of 30% increased its advertising
expenses by P10,000 and found that sales increased by P 30,000. Was it a good
decision to increase advertising expenses? Suppose that the contribution margin ratio is
now 40%. Would it be a good decision to increase advertising expense?
B. Fill in the blanks for each of the following independent cases.
Case
Revenues
Variable Cost
Fixed Cost
Total Costs
Operating
Contribution
Income
Margin
Percentage
A
P500
P-
P800
P1,200
2,000
1,000
В
300
200
C
700
1,000
---- ----
1,500
300
40%
Assessment Task
Profit Margin, Investment Turnover, and ROI
Cash Company has income from operations of $55,704, invested assets of $211,000, and sales of $506,400. Use the DuPont formula to compute the return on investment. If required, round your answers to two decimal places.
a. Profit margin
b. Investment turnover
c. Return on investment
Chapter 10 Solutions
Managerial Accounting (5th Edition)
Ch. 10 - (Learning Objective 1) Companies often...Ch. 10 - (Learning Objective 1) Which of the following is...Ch. 10 - (Learning Objective 1) In terms of responsibility...Ch. 10 - (Learning Objective 2) Which of the following is...Ch. 10 - (Learning Objective 2) A segment margin is the...Ch. 10 - Prob. 6QCCh. 10 - Prob. 7QCCh. 10 - Prob. 8QCCh. 10 - Prob. 9QCCh. 10 - Prob. 10QC
Ch. 10 - Identify and understand responsibility centers...Ch. 10 - Identify types of responsibility centers (Learning...Ch. 10 - Identify centralized and decentralized...Ch. 10 - Prob. 10.4SECh. 10 - Prob. 10.5SECh. 10 - Prob. 10.6SECh. 10 - Calculate ROI (Learning Objective 3) Refer to Epic...Ch. 10 - Prob. 10.8SECh. 10 - Prob. 10.9SECh. 10 - Prob. 10.10SECh. 10 - Prob. 10.11SECh. 10 - Interpret a performance report (Learning Objective...Ch. 10 - Prob. 10.13SECh. 10 - Classify KPIs by balanced scorecard perspective...Ch. 10 - Use vocabulary terms (Learning Objectives 1, 2, 3,...Ch. 10 - Prob. 10.16SECh. 10 - Identify type of responsibility center (Learning...Ch. 10 - Complete and analyze a performance report...Ch. 10 - Prepare a segment margin performance report...Ch. 10 - Compute and interpret the expanded ROI equation...Ch. 10 - Prob. 10.21AECh. 10 - Prob. 10.22AECh. 10 - Comparison of ROI and residual income (Learning...Ch. 10 - Prob. 10.24AECh. 10 - Comprehensive flexible budget problem (Learning...Ch. 10 - Prepare a flexible budget performance report...Ch. 10 - Work backward to find missing values (Learning...Ch. 10 - Construct a balanced scorecard (Learning Objective...Ch. 10 - Sustainability and the balanced scorecard...Ch. 10 - Identify type of responsibility center (Learning...Ch. 10 - Complete and analyze a performance report...Ch. 10 - Prob. 10.32BECh. 10 - Prob. 10.33BECh. 10 - Prob. 10.34BECh. 10 - Prob. 10.35BECh. 10 - Prob. 10.36BECh. 10 - Prob. 10.37BECh. 10 - Prob. 10.38BECh. 10 - Prob. 10.39BECh. 10 - Prob. 10.40BECh. 10 - Prob. 10.41BECh. 10 - Sustainability and the balanced scorecard...Ch. 10 - Prepare a budget with different volumes for...Ch. 10 - Prepare and interpret a performance report...Ch. 10 - Prob. 10.45APCh. 10 - Prob. 10.46APCh. 10 - Prob. 10.47APCh. 10 - Evaluate subunit performance (Learning Objectives...Ch. 10 - Prob. 10.49BPCh. 10 - Prob. 10.50BPCh. 10 - Evaluate divisional performance (Learning...Ch. 10 - Prob. 10.52BPCh. 10 - Determine transfer price at a manufacturer under...Ch. 10 - Evaluate subunit performance (Learning Objectives...Ch. 10 - Prob. 10.55SC
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