ACG3173- Exam 2 Study
$5800 Variable cost (10 × $270) $2700 Purchase cost (10 × $350) 3500 Loss on outsourcing $800 Add: Target increase in operating income 5000 Required savings in fixed cost $5800
Fruit Car Company manufactures 10 fruit themed cars per month. A compact media center is included in each car. Fruit Car Company manufactures the media center in-house but is considering the possibility of outsourcing this function. At present, the variable cost per unit is $270, and the fixed costs are $42,000 per month. The CEO, wishes to increase operating income by $5000. He has an offer from a foreign producer to provide the media centers at a contract cost of $350 per unit. The required savings in fixed costs in order to achieve his objective would be ________.
15.91 times Inventory turnover ratio: = Cost of Goods Sold / Average Merchandise Inventory =$2,100,000 / 132,000 = 15.91 times
Mango, Inc.'s cost of goods sold for the year is $2,100,000, and the average merchandise inventory for the year is $132,000. Calculate the inventory turnover ratio of the company.
2.07 times Asset turnover ratio: = Net Sales / Average total assets = $530,000 / [($255,000+ $257,000) / 2] = $530,000 / 256,000 = 2.07 times
Plum, Inc. provides the following data: 20X9 20X8 Assets Current Assets: Cash and Cash Equivalents $39,000 $25,000 Accounts Receivable, Net 38,000 62,000 Merchandise Inventory 57,000 50,000 Total Current Assets $134,000 137,000 Property, Plant, and Equipment, Net $121,000 120,000 Total Assets $255,000 $257,000 For the year ending December 31, 20X9: Net Credit Sales $530,000 Cost of Goods Sold (170,000) Gross Profit $360,000 There are no cash sales. Calculate the asset turnover ratio for 20X9.
63.53% Net income $185,000 Interest expense 24,000 Average total assets 329,000 Return on total assets--- ---Return on total assets: = (Net Income + Interest Expense) / Average total assets = {$185,000 + 24,000) / [($401,000 + $257,000) / 2] = 63.53%
Watermelon, Inc. provides the following data: 20X9 20X8 Cash $43,000 $25,000 Accounts Receivable, Net 101,000 62,000 Merchandise Inventory 70,000 50,000 Property, Plant, and Equipment, Net 187,000 120,000 Total Assets $401,000 $257,000 Additional information for the year ending December 31, 20X9: Net Credit Sales $550,000 Cost of Goods Sold 160,000 Interest Expense 24,000 Net Income 185,000 Calculate the rate of return on total assets for 20X9.
43.82% Total assets $890,000 Less: Stockholders' equity (500,000) Total liabilities $390,000 Debt ratio = Total liabilities / Total assets = $390,000 / $890,000 = 43.82%
A company reports total assets of $890,000 and stockholders' equity of $500,000. Calculate the debt ratio.
$47.25 Earnings per share = (Net Income - Preferred dividend) / Weighted average number of common shares outstanding Net income $300,000 Less: Preferred dividend* (3000 × $55.00 × 10%) = ($16,500) Earnings available to common stockholders =283,500 Common shares outstanding / 6000 = (283,500 / 6000) Earnings per share = $47.25*
A corporation has 3000 shares, 10% preferred stock of $55.00 par preferred stock, and 6000 shares of common stock outstanding. The net income for the year is $300,000. Calculate earnings per share.
$1.64 per share Net income $300,000 Earnings per share: = (Net income - Preferred dividend) / Weighted average number of common shares outstanding =Average number of common shares outstanding = (165,000 + 200,000) / 2 Average number of common shares outstanding = 182,500 shares Earnings Per Share: =300,000 / 182,500 Earnings per share* $1.64*
Apple, Inc. provides the following information for 20X9: Net income $300,000 Market price per share of common stock $50 per share Dividends paid $185,000 Common stock outstanding at Jan. 1, 2,019,165,000 shares Common stock outstanding at Dec. 31, 2,019,200,000 shares The company has no preferred stock outstanding. Calculate the earnings per share for 20X9.
29.06% Vertical Analysis % = (Specific Item / Base Amount) x 100
Avocado Company reported the following amounts on its balance sheet as of December 31, 20X9 and December 31, 20X8: 20X9 20X8 Cash and Receivables $165,000 $145,000 Merchandise Inventory 175,000 250,000 Property, Plant and Equipment, net. 830,000 770,000 Total Assets $1,170,000 $1,165,000 Total Liabilities $435,000 $475,000 For the vertical analysis, what is the percentage of current assets as of December 31, 20X9?
$4690 Required sales in dollars: = (Fixed costs + Target profit) / Contribution margin ratio Contribution margin ratio = 70% Total fixed costs = $700 + $2100 + $483 = $3283 Required sales in dollars = ($3283 + 0) / 70% = $4690
Avocado Company sells guitars to Mexican restaurants. The guitars sell for $700, and the fixed monthly operating costs are as follows: Rent and utilities $700 Wages and benefits to employees 2100 Other expenses 483 Avocado understand that for every dollar of sales, $0.70 went to cover fixed costs, and anything above that point was profit. What is the amount of revenue that Avocado should earn each month to break even? (Round your answer to the nearest dollar.)
61 jet boats and 24 ski boats Jet Boats Ski Boats Sales price per unit $8000 $20,000 Variable cost per unit $5000 $16,000 Contribution margin per unit $3000 $4000 Weighted contribution = ($3000 × 5 jet boats) + ($4000 × 2 ski boats) = $15,000 + $8000 = $23,000 Weights = 5 jet boats + 2 ski boats = 7 boats Weighted-average contribution margin per unit = $23,000 / 7 boats = $3285.71 per boat Required sales in units: = (Fixed costs + Target profit) / Contribution margin per unit = ($280,000 + 0) / $3285.71 per boat = 85 boats 85 boats in the ratio of 5:2 are 61 jet boats and 24 ski boats.
Crazy Coconut LLC has two products: Jet Boats Ski Boats Sales price per unit $8000 $20,000 Variable cost per unit $5000 $16,000 Annual fixed costs are $280,000. What is the break even amount in units, assuming that Crazy Coconut sells five jet boats for every two ski boats sold? (Round any intermediate calculations to two decimal places, and your final answer to the nearest unit.)
34.20% Vertical analysis % = (Specific item / Base amount) × 100 Vertical analysis % = ($395,000/ $1,155,000) × 100 Vertical analysis % = 34.20%
Fig Company reported the following amounts on its balance sheet as of December 31, 20X9 and December 31, 20X8: 2019 2018 Cash and Receivables $155,000 $115,000 Merchandise Inventory 195,000 240,000 Property, Plant and Equipment, net 760,000 800,000 Total Assets $1,110,000 $1,155,000 Total Liabilities $445,000 $395,000 For the vertical analysis, what is the percentage of total liabilities for December 31, 20X8?
$14,400 Total production costs incurred in May $30,600 Variable cost per unit $0.60 Number of units produced in May 27,000 Total variable costs incurred in May ($27,000 × 0.60) =$16,200 Total fixed costs ($30,600 - $16,200)= $14,400
Froot Loop Inc., a cereal manufacturer, has variable costs of $0.60 per unit of product. In May, the volume of production was 27,000 units, and units sold were 21,800. The total production costs incurred were $30,600. What are the fixed costs per month?
$1100 Saving in variable cost (800 × $6) $4800 Earnings from vacant production facilities 7500 Less: Purchase cost (800 × $14) 11,200 Increase in operating income $1100
Fruit Basket Company manufactures fruit baskets. The basket component, not including the fruit, is made in-house. Details of the baskets are as follows: Volume 800 units per month Variable cost per unit $6 per unit Fixed costs $15,000 per month A foreign factory has offered to supply Fruit Basket Company with ready-made baskets for a price of $14 per basket. Assume that Fruit Basket Company's fixed costs are unavoidable, but that Fruit Basket Company could use the vacated production facilities to earn an additional $7500 of profit per month. If Fruit Basket Company decides to outsource, monthly operating income will increase by ________.
any cost lower than $530 per unit Savings in variable cost (100 × $300) $30,000 Savings in fixed cost ($40,000 × 0.50) 20,000 Rent from vacant facilities 3000 Total savings $53,000 Number of boats manufactured per month 100 Contract cost ($53,000 / 100)= $530
Fruit Boat Company manufactures 100 fruit themed boats per month. A navigation system is included in each boat. Fruit Boat Company manufactures the navigation system in-house but is considering the possibility of outsourcing this function. At present, the variable cost per unit is $300, and the fixed costs are $40,000 per month. If it outsources the navigation system, fixed costs could be reduced by half, and the vacant facilities could be rented out to earn $3000 per month of rental income. What is the maximum contract cost that Fruit Boat Company should pay for outsourcing?
$23 Variable manufacturing costs per unit + Variable selling and administrative costs per unit.
Fruit Bouquet Inc manufactures fruit bouquets. The company produces at full capacity for six months each year to meet peak demand; the manufacturing facility operates at 80% of capacity for the other six months of the year. The company has provided the following data for the year: No. of units produced and sold 500,000 units Sales price $30 per unit Variable manufacturing costs $20 per unit Fixed manufacturing costs $900,000 per year Variable selling and administrative costs $3 per unit Fixed selling and administrative costs $500,000 per year Fruit Bouquet Inc. receives an offer to produce 7000 fruit bouquets for a special event. This is a one-time opportunity during a period when the company has excess capacity. What is the minimum sales price the company should accept for the order?
$363.00 per unit Sales revenue $128,000 Less: Variable cost 88,000 Less: Fixed cost 32,000 Operating income $8000 Target operating income ($8000 × 115 / 100) $9200 Add: Increased variable cost 96,000 Add: Increased fixed cost 40,000 Total cost $145,200 No. of units manufactured per month 400 Sales price to be charged ($145,200 / 400) =$363.00
Fruit Computer Company makes a fruit themed computer. Variable costs are $220 per unit, and fixed costs are $32,000 per month. Fruit Computer Company sells 400 units per month at a sales price of $320. The company believes that it can increase the price if the computer quality is upgraded. If so, the variable cost will increase to $240 per unit, and the fixed costs will rise by 25%. The CEO wishes to increase the company's operating income by 15%. Which sales price level would give the desired results? (Round your answer to the nearest cent.)
Operating income will decrease by $3559 Expected increase in revenues (80 × 300)= $24,000 Less: expected increase in costs Variable manufacturing (80 × 70.87*) 5669.60 Variable selling & administrative (80 × 23.62**) 1889.60 Additional fixed costs 20,000 27,559.20 Expected decrease in operating revenue $3559 *Variable manufacturing cost per unit = 900,000 / 12,700 = $70.87* *Variable selling and administrative expenses per unit = 300,000 / 12,700 = $23.62
Fruit Computer Company makes special fruit themed computers. Each unit sells for $410. Fruit Computer Company produces and sells 12,700 units per year. They have provided the following income statement data: Traditional Format Contribution Format Revenue $5,207,000 Revenue $5,207,000 Cost of goods sold 2,800,000 Variable costs: Gross profit 2,407,000 Manufacturing 900,000 Selling & admin. Selling & admin. expenses 550,000 300,000 Contribution margin 4,007,000 Fixed costs: Manufacturing 1,900,000 Selling & admin 250,000 Operating income Operating income $1,857,000 $1,857,000 A foreign company has offered to buy 80 units for a reduced sales price of $300 per unit. The marketing manager says the sale will not affect the company's regular sales. The sales manager says that this sale will require variable selling and administrative costs. The production manager reports that it would require an additional $20,000 of fixed manufacturing costs to accommodate the specifications of the buyer. If Fruit Computer Company accepts the deal, how will this impact operating income? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)
$9000 Sales price per unit $900 Less: Variable cost per unit (470) Contribution margin per unit $430 Breakeven sales in units: = (Fixed costs + Target profit) / Contribution margin per unit = ($12,900 + 0) / $430 = 30 units Expected sales - Breakeven sales = Margin of safety in units 40 units - 30 units = 10 units Margin of safety in units × Sales price per unit = Margin of safety in dollars 10 units × $900 per unit = $9000
Fruit Computer Corporation makes custom fruit shaped computers. It is currently producing 80 computers per month. Data are as follows: Sales price per unit $900 Variable cost per unit 470 Fixed costs per month 12,900 If Fruit Computer Corporation expects to sell 40 units per month, how much is its margin of safety expressed in sales revenue?
$52,000 Strawberry Cherry Apple Total Sales revenue $80,000 $50,000 $130,000 Variable costs 30,000 5000 35,000 Contribution margin 50,000 45,000 95,000 Fixed costs 20,000 15,000 35,000 Unavoidable fixed costs 25,000 25,000 Operating income (loss) $30,000 $30,000 35,000 Other income 17,000 Total income $52,000
Fruit Pie Inc. has three product lines—Strawberry, Cherry, and Apple. The following information is available: Strawberry Cherry Apple Sales revenue $80,000 $50,000 $30,000 Variable costs (30,000) (5000) (11,000) Contribution margin $50,000 $45,000 $19,000 Fixed costs (20,000) (15,000) (25,000) Operating income (loss) $30,000 $30,000 $(6000) The company is deciding whether to drop product line Apple because it has an operating loss. Assuming fixed costs are unavoidable, if Fruit Pie Inc. drops product line Apple and rents the space formerly used to produce product Apple for $17,000 per year, total operating income will be ________.
3600 glass vases Net sales revenue ($2.50 × 29,000) $72,500 Less: Variable costs ($2.00 × 29,000) (58,000) Contribution margin 14,500 Less: Fixed costs (8500) Operating income $6000 Target profit = $6000 × (1 + 30%) = $7800 Required sales in units = (Fixed costs + Target profit) / Contribution margin per unit =( $8500 + $7800 ) / ( $2.50 - $2.00 ) = 16,300 / $2.00 = 32,600 units Sales prior to change 29,000 units Additional sales needed (32,600 - 29,000)= 3600
Fruit Sushi Corporation sells delicious fruit sushi at a wholesale price of $2.50 per unit. The variable cost to manufacture is $2.00 per unit. The monthly fixed costs are $8500. Its current sales are 29,000 units per month. If the company wants to increase its operating income by 30%, how many additional units must it sell? (Round any intermediate calculations to two decimal places and your final answer up to the nearest whole unit.)
$7.88 Variable cost $1900 Add: Fixed cost 1980 Add: Target operating income 4000 $7880 No. of packs 1000 Cost per unit ($7880 / 1000) $7.88
Fruit Sushi Inc. produces 1000 packages of fruit sushi per month. The sales price is $5 per pack. Variable cost is $1.50 per unit, and fixed costs are $1800 per month. Management is considering adding a chocolate coating to improve the value of the product by making it a dessert item. The variable cost will increase from $1.50 to $1.90 per unit, and fixed costs will increase by 10%. The CEO wants to price the new product at a level that will bring operating income up to $4000 per month. What sales price should be charged? (Round your answer to the nearest cent.)
$29.40 per shirt Contribution margin ratio 30% Sales price per shirt $42.00 Contribution margin = $42.00 × 30% =12.60 Variable cost per shirt: ($42.00-12.60) =$29.40
Fruity Pebbles Apparel sells fruit themed shirts at $42.00 per shirt. It incurs monthly fixed costs of $6000. The contribution margin ratio is calculated to be 30%. What is the variable cost per shirt? (Round any intermediate calculations and your final answer to two decimal places.)
5.00% Dividend yield: = Annual dividend per share / Market price per share of common stock = $0.70 per share / $14 per share = 5.00%
Grapefruit, Inc. provides the following information for 20X8: Net income $34,000 Market price per share of common stock $14/share Dividends paid $0.70/share Common stock outstanding at Jan. 1, 2,018,130,000 shares Common stock outstanding at Dec. 31, 2,018,150,000 shares The company has no preferred stock outstanding. Calculate the dividend yield for common stock.
65.00% Contribution margin ratio = Contribution margin / Net sales revenue Sales price $40 Less: variable cost (14) Contribution margin =$26 Contribution margin ratio = ($26 / $40) × 100 = 65.00%
Guava Company has provided the following information: Sales price per unit $40 Variable cost per unit 14 Fixed costs per month $14,000 Calculate the contribution margin ratio. (Round your answer to two decimal places.)
119.28
Guava, Inc. provides the following data: 20X9 20X8 Cash $22,000 $24,000 Accounts Receivable, Net 38,000 35,000 Merchandise Inventory 55,000 30,000 Property, Plant, and Equipment, Net. 120,000 92,000 Total Assets $235,000 $181,000 For the year ending December 31, 20X9: Net Credit Sales $270,000 Cost of Goods Sold (130,000) Gross Profit $140,000 Calculate the days' sales in inventory for 20X9
$6.38 Sell as is Process further Variable cost $1500 $1700 Fixed cost 1800 1980 Total cost $3300 $3680 Sales revenue 6000 Operating income $2700 2700 Sales revenue $6380 Sales price ($6380 / 1000)= $6.38
Gushers Company produces 1000 packages of fruit snacks per month. The sales price is $6 per pack. Variable cost is $1.50 per unit, and fixed costs are $1800 per month. Management is considering adding a vitamin supplement to improve the value of the product. The variable cost will increase from $1.50 to $1.70 per unit, and fixed costs will increase by 10%. At what sales price for the new product will the two alternatives (sell as is or process further) produce the same operating income? (Round your answer to the nearest cent.)
31.65 times Net income $300,000 Average number of common shares outstanding / 190,000 Earnings per share* $1.58 Market price per share $50 Price/earnings ratio** 31.65 times *Earnings per share = (Net income- Preferred dividend) / Weighted average number of common shares outstanding **Price/earnings ratio = Market price per share of common stock / Earnings per share
Kiwi, Inc. provides the following information for 20X8: Net income $300,000 Market price per share of common stock $50 per share Dividends paid $180,000 Common stock outstanding at Jan. 1, 2,018,180,000 shares Common stock outstanding at Dec. 31, 2,018,200,000 shares The company has no preferred stock outstanding. Calculate the price/earnings ratio of common stock.
143.70 days Accounts receivable turnover ratio: = Net credit sales / Average net accounts receivable = $1,600,000 / $630,000 = 2.54 Days' sales in receivables: = 365 / Accounts receivable turnover ratio = 365 / 2.54 = 143.70
Lime, Inc. has net sales on account of $1,600,000. The average net accounts receivable are $630,000. Calculate the days' sales in receivables.
it will increase by 250 units Breakeven point (before increase in cost of direct materials): = $25,000 / ($55 - $30) = 1000 units Breakeven point (after increase in cost of direct materials): = $25,000 / ($55 - $35) = 1250 units Increase in breakeven point = 1250 - 1000 = 250 units
Mango LLC sells its product for $55 and has variable cost of $30 per unit. The total fixed costs are $25,000. What will be the effect on the breakeven point in units if variable cost increases by $5 due to an increase in the cost of direct materials? (Round your answer up to the nearest whole unit.)
50.00 times Times-interest-earned ratio: = (Net income + Income tax expense + Interest expense) / Interest expense = ($43,500 + 5500 + 1000) / 1000 = 50.00 times
Melon, Inc. provides the following income statement for 20X9: Net Sales $240,000 Cost of Goods Sold 110,000 Gross Profit $130,000 Operating Expenses: Selling Expenses 45,000 Administrative Expenses 12,000 Total Operating Expenses 57,000 Operating Income $73,000 Other Income and (Expenses): Loss on Sale of Capital Assets (23,000) Interest Expense (1000) Total Other Income and (Expenses) (24,000) Income Before Income Taxes $49,000 Income Tax Expense 5500 Net Income $43,500 Calculate the times-interest-earned ratio.
it will decrease by $1950 Contribution margin (before reduction in sales price): = $8.00 - $5.30 = $2.70 Operating income (before reduction in sales price): = (10,500 × $2.70) - $23,000 = $5350 Contribution margin (after reduction in sales price): = $7.50 - $5.30 = $2.20 Operating income (after reduction in sales price): = (12,000 × $2.20) - $23,000 = $3400 Decrease in operating income due to reduction in selling price: = $5350 - $3400 = $1950
Papaya Corporation has the following product information: Sales price $8.00 per unit Variable cost $5.30 per unit Fixed cost $23,000 per month Volume 10,500 units per month The company believes that the volume will go up to 12,000 units if the company reduces its sales price to $7.50. How would this change affect operating income?
$800 Variable cost per unit: = Change in total cost / Change in volume of activityVariable cost per unit = ($4000 - $2400) / (400 dogs - 200 dogs) = $1600 / 200 dogs = $8.00 per dog Number of dogs washed in May: 400 Variable costs incurred in May: ($8.00 per dog × 400 dogs) =$3200.00 Fixed costs incurred in May ($4000 - $3200.00) =$800
Skittles Pet store provides a dog wash service. Its highest and lowest bills of $4000 and $2400 were incurred in the months of May and November, respectively. If 400 dogs were washed in May and 200 dogs were washed in November what was the fixed cost associated with the company's water bill? (Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar.)
59.12% Percent of 20X9 Total $259,000 / $438,100 = 0.5912 59.12%
Starfruit Inc. provides the following data for the year 20X9: Net Sales Revenue 438,100 Cost of Goods Sold 259,000 The cost of goods sold as a percentage of net sales revenue is ________.
0.70 Debt to equity ratio: = Total liabilities / Total equity = $95,600 / $137,400 = 0.70
Tangerine, Inc. provides the following data: Surround, Inc. Comparative Balance Sheet Dec. 31, 20X9 Assets Current Assets: Cash and Cash Equivalents $29,000 Account Receivable, Net 31,000 Merchandise Inventory 53,000 Total Current Assets $113,000 Property, Plant, and Equipment, Net 120,000 Total Assets $233,000 Liabilities Current Liabilities: Accounts Payable $4400 Notes Payable 2200 Total Current Liabilities $6600 Long-term Liabilities 89,000 Total Liabilities $95,600 Stockholders' Equity Common Stock $39,000 Retained Earnings 98,400 Total Stockholders' Equity $137,400 Total Liabilities and Stockholders' Equity $233,000 Calculate the debt to equity ratio.
1.04 Current Ratio = Total current assets / Total current liabilities Current Ratio = (Cash $43,000 + Short-term Investments $11,000 + Net Accounts Receivable $46,000 + Merchandise Inventory $50,000) / (Accounts Payable $129,000 + Salaries Payable $15,000) Current Ratio = $150,000 / $144,000 Current Ratio = 1.04
The financial statements for Banana Company include the following items: 20X9 20X8 Cash $45,500 $43,000 Short-term Investments 31,000 11,000 Net Accounts Receivable 53,000 46,000 Merchandise Inventory 163,000 50,000 Total Assets 527,000 554,000 Accounts Payable 125,500 129,000 Salaries Payable 15,000 15,000 Long-term Note Payable 54,000 53,000 Compute the current ratio for 20X8.
$65,500 Working capital = Current assets - Current liabilities Working capital = (Cash $42,500 + Short-term Investments $31,000 + Net Accounts Receivable $99,000 + Merchandise Inventory $160,000) - $267,000 Working Capital = $332,500 - $267,000 Working Capital = $65,500
The financial statements of Persimmon Company include the following items: 20X9 20X8 Cash $42,500 $50,000 Short-term Investments 31,000 13,000 Net Accounts Receivable 99,000 99,000 Merchandise Inventory 160,000 144,000 Total Assets 525,000 544,000 Total Current Liabilities 267,000 287,000 Long-term Note Payable 56,000 57,000 What is working capital for 20X9?
long-term liabilities decreased by 23.53% Increase (Decrease) 20X9 20X8 Amount Percentage Liabilities Long-term liabilities $39,000-$51,000=$(12,000) $(12,000)/$51,000= 0.2353 (23.53)%
The following is a summary of information presented on the financial statements of a company on December 31, 20X9. Account 20X9 20X8 Current Assets $82,000 $80,000 Accounts Receivable 96,000 74,000 Merchandise Inventory 66,000 57,000 Current Liabilities 57,000 51,000 Long-term Liabilities 39,000 51,000 Common Stock 79,000 60,000 Retained Earnings 69,000 49,000 With respect to long-term liabilities, a horizontal analysis reveals ________.
A 19.60% increase in net sales revenue Increase (Decrease) 20X9 20X8 Amount Percentage Net sales revenue $604,000-$505,000=$99,000 $99,000 / $505,000= 0.1960 19.60%
The following is a summary of information presented on the financial statements of a company on December 31, 20X9. Account 20X9 20X8 Net Sales Revenue $604,000 $505,000 Cost of Goods Sold 456,000 406,000 Gross Profit 148,000 99,000 Selling Expenses 50,000 55,000 Net Income Before Income Tax Expense 98,000 44,000 Income Tax Expense 41,000 26,000 Net Income $57,000 $18,000 With respect to net sales revenue, a horizontal analysis reveals ________
$14,000 Avoidable fixed costs $72,000 Contribution margin forgone 58,000 Increase in operating income $14,000
The income statement for Orange Company is divided by its two product lines, juice and fruit, as follows: Juice Fruit Total Sales revenue $640,000 $298,000 $938,000 Variable costs (465,000) (240,000) (705,000) Contribution margin $175,000 $58,000 $233,000 Fixed costs (76,000) (76,000) (152,000) Operating income (loss) $99,000 $(18,000) $81,000 Orange Company is considering eliminating the fruit product line. If this line is eliminated, Orange Company will be able to eliminate $72,000 of total fixed costs. By how much would this business decision increase operating income?
26.50% Rate of return on common stockholders' equity: = (Net Income - Preferred dividend) / Average common stockholders' equity = $530,000 / [($1,400,000 + $2,600,000) / 2] = $530,000 / 2,000,000 = 26.50%
The net income of a company for the year was $530,000. The company has no preferred stock. Common stockholders' equity was $1,400,000 at the beginning of the year and $2,600,000 at the end of the year. Calculate the rate of return on common stockholders' equity.
