exam 2 - formulas. understanding roi roi = net operating income average operating assets margin =...

Exam 2 - Formulas

Understanding ROI

ROI = Net operating income

Average operating assets

Margin = Net operating income

Sales

Turnover = SalesAverage operating

assets ROI = Margin Turnover

Calculating Residual Income

Residual income

=Net

operating income

-Average

operating assets

Minimum

required rate of return

( )

Price Elasticity of Demand

Єd =ln(1 + % change in quantity sold)

ln(1 + % change in price)

Natural log functionNatural log functionPrice elasticity of demandPrice elasticity of demand

The Profit-Maximizing Price

-1Profit-maximizingmarkup on

variable cost 1 + Єd

=

Under certain conditions, the profit-maximizing price can be determined using the following formula:

Using the above markup, the selling price would be set using the formula:

Profit-maximizingprice

-11 + Єd

Variablecost per

unit= (1 + ) ×

Determining the Markup Percentage

Markup %on absorption

cost

(Required ROI × Investment) + S & A expensesUnit sales × Unit product cost=

The equation for calculating the markup percentage on absorption cost is shown below.