Problem 1: The following data pertain to Norris Company for 20x1:
Sales Revenue $1,000,000
Cost of goods sold 550,000
Operating expenses 400,000
Average invested capital 500,000
Required:
(A.) Calculate the company's sales margin, capital turnover, and return on investment for 20x1.
(B.) If the sales and average invested capital remain the same, to what level would total costs and expenses have to be reduced in 20x2 to achieve a 15% return on investment?
(C.) Assume that costs and expenses are reduced, as calculated in requirement "B." Calculate the firm's new sales margin.
(D.) Suggest two possible actions that will improve the company's capital turnover.
Problem 2: Papa Fred's Pizza store no. 16 has fallen on hard times and is about to be closed. The following figures are available for the period just ended:
Sales $205,000
Cost of sales 67,900
Building occupancy costs
Rent 36,500
Utilities 15,000
Supplies used 5,600
Wages 77,700
Miscellaneous 2,400
Allocate corporate overhead 16,800
All employees except the store manager would be discharged. The manager, who earns $27,000 annually, would be transferred to store no. 19 in a neighboring suburb. Also, no. 16's furnishings and equipment are fully depreciated and would be removed and transported to Papa Fred's warehouse at a cost of $2,800.
Required:
(A.) What is store no. 16's reported loss for the period just ended?
(B.) Should the store be closed? Why?
(C.) Would Papa Fred's likely lose all $205,000 of sales revenue if store no. 16 were closed? Explain.
Problem 3: The following data pertain to Polar Company's commercial snow thrower:
Variable manufacturing cost $400
Applied fixed manufacturing cost 160
Variable selling & administrative cost 60
Allocated fixed selling & administrative cost 25
Required:
For each of the following cost bases, determine the appropriate percentage markup that will result in a price of $980 for the snow thrower. (Round percentages to nearest one-hundredth of a percent.)
(A.) Variable manufacturing cost.
(B.) Absorption manufacturing cost.
(C.) Total cost.
(D.) Total variable cost.