Chapter 11, Problem

1.

To determine

Return on Investment or asset: It establishes the relationship between the net income and the assets or capital employed. The ratio is used to measure the overall performance of an organization by looking at how efficiently an organization uses its resources.

:

The margin, turnover, and return on investment (ROI) of the company.

2.

To determine

Operating assets: Operating assets refer to those assets which are acquired by the company to support its ongoing business operations. These are the assets that contribute to generating revenue. For instance, cash, accounts receivable, prepaid expenses, and so on.

:

The effect of reduction in the average level of inventory on the margin and turnover of the company and computation of the revised return on investment.

3.

To determine

Cost saving refers to the benefit realized by the company by reducing the overall spending or cost of conducting a business. Cost saving has a direct impact on the profit and loss of the company. It is also known as hard saving or cost reduction. 

:

The effect of the cost saving on the margin and turnover of the company and computation of the revised return on investment.

4.

To determine

Production costs: Production costs refer to the total costs incurred by an organization in order to manufacture a product or provide a service to the customers. Production cost includes both the direct cost as well as indirect costs. For example, raw materials, labor, general overhead, and so on. 

:

The effect of the purchase of plant and machinery, reduction in production cost on the margin and turnover of the company, and computation of the revised return on investment.

5.

To determine

Sales revenue: Sales revenue is the amount earned by the company by selling goods or providing services to the customers. It is determined by multiplying the number of units sold with the selling price per unit. The amount of sales revenue is recorded under the head of gross revenue or net revenue in the income statement.

:

The effect of an increase of 20% in sales on the margin and turnover of the company and computation of the revised return on investment.

6.

To determine

Return on Investment or asset: It establishes the relationship between the net income and the assets or capital employed. The ratio is used to measure the overall performance of an organization by looking at how efficiently an organization uses its resources.

:

The effect of scrapped inventory on the margin and turnover of the company and computation of the revised return on investment.

7.

To determine

Cash and cash equivalents: Cash and cash equivalents are short-term or current investments that can be converted into a specific amount of cash quickly. An instrument that can be converted into cash within 3 months or less refers to a cash equivalent. In a balance sheet of a company, cash equivalent is reported under the main head named assets and the subhead current assets of the balance sheet.

:

The effect of reduction in cash on the margin and turnover of the company and computation of the revised return on investment.