Midget Co Has a Profit Margin on Sales of 4% and and a ROE

question 3

Multiple Choice

Midget Co. has a profit margin on sales of 4% and a ROE of 18%. If Midget's debt-to-equity ratio is .8, what is the total asset turnover ratio?

• A) 2.500.
• B) 5.625.
• C) 2.000.
• D) 10.125.

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Definitions:

Variable Manufacturing Costs

Expenses that fluctuate with production output levels, including raw materials, direct labor, and utility costs directly involved in the manufacturing process.

Predetermined Fixed Overhead

A budgeted or estimated amount of fixed overhead costs, used to allocate overhead costs to products or services.

Variable Costing

A costing method that includes only variable costs—direct materials, direct labor, and variable manufacturing overhead—in the cost of a unit of product, excluding fixed overhead costs.

Absorption Costing

Absorption Costing is a method of inventory costing that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of a product.