Question

13) Carver Company's balance sheet and income statement are provided below:

Carver Company
Balance Sheet
December 31
Assets
Cash		$		40,000
Accounts receivable				52,000
Inventory				80,000
Plant and equipment, net of depreciation				280,000
Land held for future plant expansion				76,000
Total assets		$		528,000
Liabilities and Stockholders' Equity
Accounts payable		$		45,000
Notes payable				58,000
Capital stock, no par				240,000
Retained earnings				185,000
Total liabilities and stockholders' equity		$		528,000
Carver Company
Income Statement
For the Year Ended December 31
Sales	$		330,000
Less variable costs:
Manufacturing			68,000
Selling and administrative			48,000
Contribution margin	$		214,000
Less fixed costs:
Manufacturing			68,000
Selling and administrative			56,000
Net income	$		90,000

Required:

1) Compute the margin, turnover, and return on investment for Carver Company.

Answer 1

GROSS PROFIT MARGIN = (GROSS PROFIT / NET SALES) * 100

GROSS PROFIT = SALES - VARIABLE MANUFACTURING EXPENSE - FIXED MANUFACTURING EXPENSE

= 330000 - 68000 - 68000 = $194000

= (194000 / 330000) * 100 = 58.79%.

NET PROFIT MARGIN = (NET INCOME / NET SALES) * 100 = (90000 / 330000) * 100 = 27.27%.

ACCOUNTS RECEIVABLE TURNOVER = SALES / ACCOUNTS RECEIVABLE

= 330000 / 52000 = 6.35 TIMES.

ASSET TURNOVER = SALES / ASSETS

= 330000 / 528000 = 0.625.

RETURN ON INVESTMENT = (NET INCOME / CAPITAL EMPLOYED) * 100

CAPITAL EMPLOYED = CAPITAL STOCK + RETAINED EARNINGS

= 240000 + 185000 = $425000

= (90000 / 425000) * 100 = 21.18 %.