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