Exercises:
12-4
a. Company A - $1000 Company B - $1000
b. Operating leverage is the use of fixed cost to increase net income, and company B uses more operating leverage.
c. Company A because it has lower fixed costs
d. Company B because it has lower variable costs that will increase proportionally

12-10 Lucy’s Lockets Desi’s Delights 2008 2007 2008 2007
Asset turnover 126% 122.2% 74.3% 76.7%
Profit margin 9.4% 9.1% 9.1% 9.5%
Return on Assets 11.8% 11.1% 6.8% 7.3%

Lucy’s Lockets uses their assets more efficiently to generate more profits.

12-19
Cobb is apparently riskier because they had an 18 million asset impairment charge and also sold 32 million of additional assets. Also, Cobb was not able to cover its interest payments out of operating income in either year which shows that they can’t even meet their obligations and are therefore very risky.

Chapter 13
Questions
13-1
The income statement reports the accrual-basis consequences while the statement of cash flows reports the cash-basis consequences of the operating activities
Exercise
13-19
a. Total units sold = 70 + 60 + 60 = 190
Total units in ending inventory = 60
FIFO ending inventory = (60 × 15) = $900
FIFO cost of goods sold = $2,500
b. LIFO ending inventory = 60 × 12 = $720
LIFO cost of goods sold = $2,680
c. Total cost of goods available for sale = 1,200 + 700 + 1,500 =