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Chapter 9 The Foundational 15


	Sales	$ 1,000,000	Sales	$ 200,000
	Variable expenses	$ 300,000	Contribution margin ratio	60%	of sales
	Contribution Margin	$ 700,000	Fixed expenses	$ 90,000
	Fixed expenses	$ 500,000
	Net operating income	$ 200,000	Rate of return	15%
	Average operating assets	$ 625,000	Investment opportunity	$ 120,000
1	Margin
2	Turnover
3	ROI
4	Margin
5	Turnover
6	ROI
7,8,9
	Margin
	Turnover
	ROI
10
11	Average operating assets
	Net operating income
	Minimum required return
	Residual income
12	Average operating assets
	Net operating income
	Minimum required return
	Residual income
13	Average operating assets
	Net operating income
	Minimum required return
	Residual income
14	The CEO would pursure the investment opportunity because it would raise
	her residual income by $12,000.
15	Average operating assets
	Net operating income
	Minimum required return
	Residual income

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Chapter 10 The Foundational 15


		Alpha	Beta
	Direct Materials	$ 30	$ 12
	Direct labor	$ 20	$ 15
	Variable manufacturing overhead	$ 7	$ 5
	Traceable fixed manufacturing overhead	$ 16	$ 18
	Varaible selling expenses	$ 12	$ 8
	Common Fixed Expenses	$ 15	$ 10
	Total cost per unit	$ 100	$ 68
		Alpha	Beta
1	Traceable fixed overhead per unit
	Level of activity in units
	Total traceable fixed overhead
2	Common Fixed expenses per unit
	Level of activity in units
	Total common fixed expenses
	The company's total common fixed Xpen
				units
3	Incremental revenue
	Incremental costs:
	Variable costs:
	Direct materials
	Direct labor
	Variable manufacturing overhead
	Variable selling expense
	Total variable cost
	Incremental net operating income
4			Total
		Per Unit
	Incremental revenue
	Incremental costs:
	Variable costs:
	Direct materials
	Direct labor
	Variable manufacturing overhead
	Variable selling expense
	Total variable cost
	Incremental net operating income
5			Total
		Per Unit
	Incremental revenue
	Incremental costs:
	Variable costs:
	Direct materials
	Direct labor
	Variable manufacturing overhead
	Variable selling expense
	Total incremental variable cost
	Forgone sales to regular customers
	Incremental net operating income
6	Contribution margin gained or lost if the Beta product line is
	dropped
	Traceable fixed manufacturing overhead
	Increase or (decrease) in net operating income if Beta
	is dropped
7	Contribution margin gained or lost if the Beta product line is
	dropped
	Traceable fixed manufacturing overhead
	Increase or (decrease) in net operating income if Beta
	is dropped
8	Contribution margin gained or lost if the Beta product line is
	dropped
	Traceable fixed manufacturing overhead
	Contribution margin on additional Alpha sales
	Increase or (decrease) in net operating income if Beta
	is dropped
				Make	Buy
9		Units	Cost
	Cost of purchasing
	Direct Materials
	Direct labor
	Variable manufacturing overhead
	Traceable fixed manufacturing overhead
	Total costs
	Difference in favor of
	making or buying Alphas
10				Make	Buy
		Units	Cost
	Cost of purchasing
	Direct Materials
	Direct labor
	Variable manufacturing overhead
	Traceable fixed manufacturing overhead
	Total costs
	Difference in favor of
	making or buying Alphas

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