Formulas & Ratios

Question 1

Gross Margin Percentage (Formula)

Answer 1

Gross Margin / Sales

Question 2

Earnings per Share of Common Stock (Formula)

Answer 2

(Net Income - Preferred Dividends) / Average Number of Common Shares Outstanding

Question 3

Price-Earnings per Share (Formula)

Answer 3

Market Price per Share / Earnings per Share

Question 4

Dividend Payout Ratio (Formula)

Answer 4

Dividends per Share (Common Dividends / Common Shares) / Earnings per Share

Question 5

Dividend Yield Ratio (Formula)

Answer 5

Dividends per Share (Common Dividends/ Common Shares) / Market Price per Share

Question 6

Return on Total Assets (Formula)

Answer 6

Adjusted Net Income {Net Income + [Interest Expense * (1 - Tax Rate)]} / Average Total Assets

Question 7

Return on Common Stockholders’ Equity (Formula)

Answer 7

(Net Income - Preferred Dividends) / (Average Total Stockholders’ Equity - Average Preferred Stock)

Question 8

Book Value per Share (Formula)

Answer 8

(Total Stockholders’ Equity - Preferred Stock) / Number of common Shares Outstanding

Question 9

Working Capital (Formula)

Answer 9

Current Assets - Current Liabilities

Question 10

Current Ratio (Formula)

Answer 10

Current Assets / Current Liabilities

Question 11

Acid-Test Ratio (Formula)

Answer 11

(Cash + Marketable Securities + Accounts Receivable + Short-Term Notes Receivable) / Current Liabilities

Question 12

Accounts Receivable Turnover (Formula)

Answer 12

Sales on Account / Average Accounts Receivable Balance

Question 13

Average Collection Period (Formula)

Answer 13

365 Days / Accounts Receivable Turnover

Question 14

Inventory Turnover (Formula)

Answer 14

Costs of Goods Sold / Average Inventory Balance

Question 15

Average Sale Period (Formula)

Answer 15

365 Days / Inventory Turnover

Question 16

Times Interest Earned (Formula)

Answer 16

Net Operating Income (Earnings before Interest Expense and Income Taxes) / Interest Expense

Question 17

Debt-to-Equity Ratio (Formula)

Answer 17

Total Liabilities / Stockholders’ Equity

Question 18

Prime Cost (Formula)

Answer 18

Direct Materials Cost + Direct Labor Cost

Question 19

Conversion Cost (Formula)

Answer 19

Direct Labor Cost + Manufacturing Overhead Cost

Question 20

High Low Method of Cost Accounting (Process)

Answer 20

1. identify the periods of the lowest and highest activity.
2. Compute the variable cost per unit using those two data points:
   (Variable Cost = Change in Cost/Cost in Activity)
3. Compute the fixed cost element by deducting the variable cost element from the total cost at either the high or low activity:
   (Fixed Cost = Total Cost - Variable Cost)
4. Express data in the cost formula Y = a + bX

Question 21

High Low Method of Cost Accounting (Significance)

Answer 21

Change in Cost/Cost in Activity

Question 22

Predetermined Overhead (Steps & Formulas)

Answer 22

Step 1: Estimated Total Overhead Cost
ETMOC = a + b(X)
a = ETFOC (Estimated Total Fixed Overhead Cost)
b = EVMOC (Estimated Variable Manufacturing Overhead Cost per Unit of the Allocation Base)
X = ETAAB (Estimated Total Amount of the Allocation Base)

Step 2: Predetermined Overhead Rate
POR = ETMOC / ETAAB

Step 3: Overhead Applied to a Particular Job
OAPJ = POR * AABIJ
AABIJ = Amount of the Allocation Base Incurred by the Job