January 5, 2018
ABC Co. purchases an item. The annual demand for this is 75000 unites. The ordering cost is \$60 per order. The holding cost is \$4 per unit per year. The lead time for this item is 3 days. Assume 250 working days per year.
January 5, 2018

Stanley appliances producewashing machines and dryers. The company’s external income statements for the last two years are given below:
2012 2013 2014?
Units Sold 150,000 195,000
Sales Revenue
\$ 2,160,000
\$ 2,700,000
Cost of Goods Sold 1,358,000 1,718,000
Gross Margin 802,000
982,000

S, G & A 210,000 210,000
Net Operating Income \$ 592,000 \$ 772,000
The company has no beginning or ending inventories. Manufacturing costs are mixed, while S,G&A costs are strictly fixed.
Required:
1. Use the “high-low” method to estimate the variable manufacturing cost per unit and the total fixed manufacturing cost.
Variable Mfg. cost per unit =
Total Fixed Mfg. costs =
2. How much total contribution margin was earned in 2012 year?
3. What was the degree of operating leverage in 2013?
4. If sales increase by 15% from 2013 to 2014, how much net operating income will the company earn in 2014?
5. Assume that total assets decreased from \$14,000,000 to \$10,000,000 during 2013. The company’s minimum acceptable rate of return is 6%. Compute the following for 2013:
Return on Sales =
Investment Turnover =
Return on Investment =
Residual Income =