Question

1. The following data are available for the Northern Division of Comet Products and the single product it makes:

Unit selling price	$60
Variable cost per unit	$36
Annual fixed costs	$840,000
Average operating assets	$4,500,000

How many units must the Northern Division sell each year to have an ROI of 16%?

2. The Southern Division of Schuler Enterprises recorded operating data as follows for the past year:

Sales	$600,000
Net operating income	75,000
Average operating assets	300,000
Stockholders’ equity	240,000
Residual income	39,000

            What was the margin for the past year?

3. Selected year-end data for the Melbourne Company are presented below:

Acid-test ratio	2.5 to 1
Cost of goods sold	$1,500,000
Current liabilities	$1,800,000
Current ratio	3.0 to 1

            The company has no prepaid expenses and inventories remained unchanged during the year. Based on these data, what was the company's inventory turnover ratio for the year?

4.Meryl Company had $540,000 in sales on account last year. The beginning accounts receivable balance was $30,000 and the ending accounts receivable balance was $54,000. What was the company's average collection period (age of receivables)?

Answer 1

1)

Required Profit = Rate of ROI * Average Operating Assets

= $4,500,000 * 16/100

= $720,000

Units must sold to earn the required profit of $720,000 = (Total Fixed Cost + Required Profit) / Contribution Margin per Unit

Contribution Margin per Unit = Selling price per unit - Variable cost per unit

= $60 per unit - $36 per unit

= $24 per unit

Units must sold to earn the required profit of $720,000 = (Total Fixed Cost + Required Profit) / Contribution Margin per Unit

= ($840,000 + $720,000) / $24 per unit

= $1,560,000 / $24 per unit

= 65,000 units

Therefore, units must Northern Division should sell to earn the 16% of ROI is 65,000 units.

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