Return on investment (ROI) is computed in the following manner: ROI is equal to turnover multiplied by earnings as a percent of sales. Turnover is sales divided by total investment. Total investment is currentassets (inventories, accounts receivable, and cash) plus fixed assets. Earnings equal sales minus the cost of sales. The cost of sales consists of variable production costs, selling expenses, freight and delivery,and administrative costs. Complete parts a and b.a. Construct an influence diagram that relates these variables. Choose the correct diagram below.Click here to view influence diagram D.Click here to view influence diagram C.Click here to view influence diagram A.Click here to view influence diagram B.b. Develop a mathematical model using the symbols defined on the left.E: EarningsT: TurnoverROI =T =E =S: SalesTI =C =C: Cost of SalesTI: Total InvestmentCA: Current AssetsFA: Fixed AssetsPC: Prod CostsSC: Sales ExpenseFC: Freight and DeliveryAC: Admin Costs

Return on Investment (ROI) is a fundamental metric used by businesses to evaluate the profitability…

Answered: Return on investment (ROI) is computed…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Cost-volume-profit analysis is used to make many decisions, including product pricing and controlling costs. What is meant by the statement, my company has good operating leverage?
Answer full question.
Management uses Cost Volume Profit (CPV) analysis as a planning process to predict the future volume of activity, costs incurred, sales made and profit received. Required: i. List and explain FIVE assumptions in C-V-P analysis.
Cost-Volume-Profit (CVP) Analysis: Understanding Business Dynamics Cost-Volume-Profit (CVP) analysis is a financial management tool that plays a pivotal role in helping businesses understand the relationships between costs, volume of production, sales, and profits. This analytical technique provides valuable insights into the financial implications of various business decisions, making it an essential component of strategic planning and decision-making processes. Components of CVP Analysis: Fixed Costs: These are costs that remain constant regardless of the level of production or sales. Examples include rent, salaries, and insurance. Fixed costs are crucial in understanding the breakeven point - the point at which total revenue equals total costs. Variable Costs: Variable costs fluctuate in direct proportion to changes in production or sales volume. Examples include raw materials, direct labor, and variable manufacturing overhead. Understanding variable costs is vital for assessing…
Cost-volume-profit (CVP) analysis for revenue planning determines: The desired profit level of a firm. Both revenue maximization and cost minimization. The costs associated with a certain level of revenue. The max amount of revenue a firm can receive. The revenue required to achieve a desired profit level.
Cost-volume-profit analysis is used to make many decisions, including product pricing and controlling costs. What are the limitations of using operating leverage to predict profitability?
Give typing answer with explanation and conclusion 5. Which of the following statements is correct? A-- All the answers are correct. B-- A more direct method of calculating the DOL is to use the following equation is DOL = (Sales - Variable Costs)/EBIT. C-- Because the amount of debt is determined by managerial choice, the business risk that a firm faces is also determined by management. D-- Fixed costs are those costs that are expected to change at the same rate as the firm’s sales. E-- If a firm’s operating costs are all variable, then any variation in sales will be less than the variation in EBIT.

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