Open book exam
Time: 2 hours
Question 1: Revenues, Costs, and Profits (Unit 3) (25%)
Example:
In early 2013, Jennifer (Jen) Liu and Larry Mestas founded Jen and Larry’s Frozen Yogurt
Company, which was based on the idea of applying the microbrew or microbatch strategy to the
production and sale of frozen yogurt. They began producing small quantities of unique flavors
and blends in limited editions. Revenues were $600,000 in 2013 and were estimated at $1.2
million in 2014. Because Jen and Larry were selling premium frozen yogurt containing premium
ingredients, each small cup of yogurt sold for $3 and the cost of producing the frozen yogurt
averaged $1.50 per cup. Other expenses plus taxes averaged an additional $1 per cup of frozen
yogurt in 2013 and were estimated at $1.20 per cup in 2014.
A. Estimate the dollar amounts of gross profit and net profit for Jen and Larry’s venture in
2013 and 2014. (10%)
B. 2013 2014
C. Revenue $ 600,000 $ 1,200,000
D. COGS (Units x COGS per Unit) 300,000 600,000
E. Gross Profit 300,000 600,000
F. OE + Tax 200,000 480,000
G. Net Profit $100,000 $120,000
H. Calculate the gross profit margins and net profit margins in 2013 and 2014. (10%)
Gross Profit Margin = Gross Profit/Revenues
Net Profit Margin = Net Profit/Revenues
Gross Profit Margin in 2013 = Gross Profit/Sales = 300,000/600,000 = 50%
Net Profit Margin in 2013 = Net Profit/Sales = 100,000/600,000 = 16.7%
Gross Profit Margin in 2014 = Gross Profit/Sales = 600,000/1,200,000 =
50%
Net Profit Margin in 2014 = Net Profit/Sales = 120,000/1,200,000 = 10%
Question 2 Financial Ratios and Performance: ROA, assets turnover (Unit 3) (25%)
Example:
[Returns on Assets] Jen and Larry’s frozen yogurt venture required some investment in bricks
and mortar. Initial specialty equipment and the renovation of an old warehouse building in
Lower Downtown, referred to as LoDo, cost $450,000 at the beginning of 2013. At the same
time, $50,000 was invested in inventories. In early 2014, an additional $100,000 was spent on
equipment to support the increased frozen yogurt sales in 2014. Use information from Question
1 and this problem to answer the following questions.
A. Calculate the return on assets in both 2013 and 2014.
Total Assets 2013 = Warehouse + Inventory = $450,000 + $50,000 = $500,000
Total Assets 2014 = Warehouse + Inventory + Additional Capital Expenditure
= $450,000 + $50,000 + $100,000 = $600,000
Return on Assets (ROA) = Net Profit/Total Assets
ROA for 2013 = 100,000/500,000 = 20%
ROA for 2014 = 120,000/600,000 = 20%
B. Calculate the asset intensity or asset turnover ratios for 2013 and 2014.
C. Asset Intensity = Total Assets/Revenues
D. Asset Intensity Ratio for 2013 = 500,000/600,000 = .80
E. Asset Intensity Ratio for 2014 = 600,000/1,200,000 = .50
F. Assets Turnover = Revenues/Total Assets
G. Asset Turnover Ratio for 2013 = 600,000/500,000 = 1.20
H. Asset Turnover Ratio for 2014 = 1,200,000/600,000 = 2.00
