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Exam 2 - Formulas

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Understanding ROI ROI = Net operating income Average operating assets Margin = Net operating income Sales Turnover = Sales Average operating assets ROI = Margin Turnover

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Calculating Residual Income ()

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Price Elasticity of Demand Є d = ln(1 + % change in quantity sold) ln(1 + % change in price) Natural log function Price elasticity of demand

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The Profit-Maximizing Price Profit-maximizing markup on variable cost 1 +ЄdЄd = 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-maximizing price 1 +ЄdЄd Variable cost per unit =(1 + ) ×

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Determining the Markup Percentage Markup % on absorption cost (Required ROI × Investment) + S & A expenses Unit sales × Unit product cost = The equation for calculating the markup percentage on absorption cost is shown below.

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