User Account

All Pages

Compute the margin and turnover ratios

Assignment Help Accounting Basics
Reference no: EM132008092

Question - Kashmir Products is a division of Oberlin Textiles, Inc. During the coming year, it expects to earn a net operating income of $290,000 based on sales of $3.45 million; without any new investments, the division will have average net operating assets of $3 million.

The division is considering a capital investment project-adding knitting machines to produce socks-that requires an additional investment of $600,000 and increases net operating income by $57,500 (sales would increase by $575,000). If made, the investment would increase beginning net operating assets by $600,000 and ending net operating assets by $400,000. Assume that the minimum rate of return required by the company is 7 percent.

Required:

1. Compute the ROI for the division without the investment.

2. Compute the margin and turnover ratios without the investment. Show that the product of the margin and turnover ratios equals the ROI computed in Requirement 1.

3. Compute the ROI for the division with the new investment. Do you think the divisional manager will approve the investment? Explain. (Note: Be sure to use average operating assets in your calculation.)

4. Compute the margin and turnover ratios for the division with the new investment. Compare these with the old ratios.

5. Assume that a JIT purchasing and manufacturing system is installed, reducing average operating assets by $800,000. Compute the ROI with and without the investment under this new scenario. Now do you think the divisional manager will accept the new investment? Should he accept it? Explain you answer.

6. Assume that the JIT purchasing and manufacturing system is installed, reducing average operating assets by $800,000. Now assume that the divisional manager is evaluated with residual income. Compute the residual income with and without the investment under this new scenario. Now do you think the divisional manager will accept the new investment? Should he accept it? Explain you answer.

Reference no: EM132008092

Questions Cloud

Salaries of professional nurses employed by private : A researcher wishes to determine whether the salaries of professional nurses employed by private hospitals are higher than those of nurses employed
Estimate the unlevered beta for the company : Estimate the expected return on the stock for a short-term investor in the company. Estimate the unlevered beta for the company.
Annual rates of auto insurance in the united states : The average annual rate for the United States was $1317. Suppose annual rates of auto insurance in the United States are normally distributed
What is the value of this annuity five years from now : If the discount rate is 15 percent compounded monthly, what is the value of this annuity five years from now?
Compute the margin and turnover ratios : Compute the margin and turnover ratios without the investment. Show that the product of the margin and turnover ratios equals the ROI computed in Requirement 1
Incorporate hypothesis testing in the healthcare field : Why is hypothesis testing important, and how could I incorporate hypothesis testing in the healthcare field?
Describe the character you have chosen : Set up an easybib project and begin researching and citing : the free script, research about the archetype you have chosen, psychological information.
Determine incremental cost or benefit of buying thermostats : Prepares a schedule to determine the incremental cost or benefit of buying thermostats from the outside supplier
Number of ounces of water is a water bottle : The number of ounces of water is a water bottle is normally distributed with a mean of 16.9oz and a standard deviation of 0.25oz.

Reviews

Write a Review

Accounting Basics Questions & Answers

  Determining the lindley operating income

It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 40%. How much was Lindley's operating income, or EBIT?

  If inez is in the 35 bracket how much income tax results

during the year inez had following transactions involving capital gains gain on the sale of unimproved land 3000 loss

  How do i calculate the margin of safety for the company

total fixed cost of 400,000 and a degree of operating leverage of 6 How do I calculate the margin of safety for the company for that year

  What is his deductible keogh contribution

His earnings from self-employment before the Keogh deduction but after deducting half of self-employment tax are 80,000 what is deductible Keogh contribution

  Required based on the above information calculate the

a company reported the following informationnet income for the year was 60 million.equipment purchases were 5

  Journal entries to record the write-off of receivables

Colorado Rocky Cookie Company offers credit terms to its customers. At the end of 2013, accounts receivable totaled $680,000. The allowance method is used to account for uncollectible accounts.

  Wayside machine tool company purchased a 600000 welding

wayside machine tool company purchased a 600000 welding machine to use in production of large machine tools and robots.

  Installment method of accounting

Company began operations on January 1, 2010, and appropriately uses the installment method of accounting. The following data are available for 2010:

  Smothers wood company is in the process of selecting cost

smothers wood company is in the process of selecting cost drivers that could be used as the basis for allocating

  Prepare a monthly flexible budget

Prepare a monthly flexible budget for each $13,700 increment of sales within the relevant range for the year ending December

  Nrtons outstanding stock consists of a 13000 shares of

nortons outstanding stock consists of a 13000 shares of noncumulative 8 preferred stock with a 10 par value and b 32500

  Prepare a cost of goods sold section for the year

The trial balance of G. Durler Company at the end of its fiscal year, August 31, 2010, includes these accounts: Merchandise Inventory $17,200; Purchases $149,000.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd