MANAGERIAL ACCOUNTING QUIZ 6 Score Name Section Problem 10 p

MANAGERIAL ACCOUNTING QUIZ 6 Score Name Section Problem (10 points). The Appliance Division of Newman Manufacturing Company reported the following results for 20x0. NEWMAN MANUFACTURING COMPANY APPLIANCE DIVISION RESULTS OF OPERATIONS FOR YEAR 20XO Sales Controllable variable costs Controllable fixed costs Avera 4.500,000 2,800,000 700,000 2,500,000 ting assets Management is considering the following independent altermative courses of action in 20X1 in order to maximize its operating performance measures for the division. Management uses controllable income as the income measure for performance evaluation. NEWMAN MANUFACTURING COMPANY APPLIANCE DIVISION ALTERNATIVE COURSES OF ACTION BEING CONSIDERED FOR OPERATIONS FOR YEAR 20X1 (a) | Reduce controllable fixed costs by 15% with no change in sales or variable costs. (b) | Reduce average operating assets by 20% with no change in controllable income. (c) Increase sales S500,000 with no c in the contribution

Solution

Solution:

(1) (a)Asset Turnover ratio= net sales/ avg. op. Assets

=4,500,000/2,500,000

= 1.8

(b) profit margin ratio=(net income/ sales ) x100

=(1,000,000/ 4,500,000)x100

=22.2222%

(c) Return on investment =( net income/ avg. assets)x100

=( 1,000,000/2,500,000)x100

=40%

Solution: (2)

(a) return on investment= net income/ avg. Assets

=(1,105,000/2,500,000)x100

=44.20%

(b)assets turnover ration= sales/ avg assets

=4,500,000/2,000,000 =2.25

(c) profit margin ration= (net income /sales )x100

=(1,188,889/5,000,000)x100

=23.7778%

Working:

Data for 20X1

* Controllable variable cost = (2,800,000×5,000,000)÷4,500,000 = 3,111,111

	(a) reduce fixed cost by 15?	(b) reduce assets by 20%	(c ) change in sales and variable cost
Sales	4,500,000	4,500,000	5,000,000
Less: Controllable variable cost	2,800,000	2,800,000	3,111,111*
Less: Controllable fixed cost	595,000	700,000	700,000
Net income	1,105,000	1,000,000	1,188,889
Avg. Operating assets	2,500,000	2,000,000	2,500,000