Using the Du Pont Identity Method, Calculate the Equity Multiplier

question 162

Multiple Choice

Using the Du Pont Identity Method, calculate the equity multiplier given the following information. Profit margin 19%; total asset turnover 1.5; return on equity 37.05%.

• A) 1.2
• B) 1.3
• C) 1.4
• D) 1.5
• E) 1.6

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Definitions:

Standard Direct Labour Hours

The estimated amount of labor hours required to produce a certain amount of output under normal conditions.

Actual Production

The real quantity of goods or services produced within a specific period, as opposed to planned or theoretical outputs.

Normal Production

The average production capacity or level of output that a manufacturing process or plant is designed to achieve under normal conditions.

Direct Material Quantity Variance

The variance between the real amount of materials consumed in production and the anticipated standard quantity, multiplied by the cost per unit set by standards.