QUESTIONS :
1. Which of the following performance measures will decrease if there is an increase in the accounts receivable? Return on InvestmentResidual Income (A) Yes Yes(B) No Yes(C) Yes No(D) No No Choice A Choice B Choice C Choice D 2. Delmar Corporation is considering the use of residual income as a measure of the performance of its divisions. Which major disadvantage of this method should the company consider before deciding to institute it? This method does not take into account differences in the size of divisions. Investments may be adopted that will decrease the overall return on investment. The minimum required rate of return may eliminate desirable investments. Residual income does not measure how effectively the division manager controls costs. 3. Given the following data: What is the return on the investment (ROI)?Sales$50.000Net operating income$5,000Contribution margin$20,000Average operating assets$25,000Stockholder’s equity$15,000 A. 10% B. 20% C. 16.7% D. 80% |
4. (TCO D) Financial data for Beaker Company for last year appear below. Beaker CompanyStatement of Financial Position BeginningEnding BalanceBalanceAssets Cash$50,000$70,000Accounts receivable20,00025,000Inventory30,00035,000Plant and Equipment (net)120,000110,000Investment in Cedar Company80,000100,000Land (undeveloped)170,000170,000Total Assets$470,000510,000 Liabilities and Owners’ Equity Accounts payable$70,000$90,000Long-term debt250,000250,000Owner’s equity150,000170,000Total liabilities and owner’s equity$470,000$510,000 Beaker Company Income Statement Sales $414,000Less Operating Expenses 351,900Net Operating Income 62,100Less Interest and Taxes Interest Expense$30,000 Tax Expense10,00040,000Net Income $22,000 The company paid dividends of $2,100 last year. The “Investment in Cedar Company” on the statement of financial position represents an investment in the stock of another company. Required: i. Compute the company’s margin, turnover, and return on investment for last year. ii. The board of directors of Beaker Company has set a minimum required return of 20%. What was the company’s residual income last year?
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5. Ferro Wares is a division of a major corporation. The following data are for the latest year of operations. Sales$33,040,000Net Operating Income$1,453,760Average Operating Assets$8,000,000The company’s minimum required rate of return18% Required: i. What is the division’s ROI? ii. What is the division’s residual income? (Points : 15)
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6. Tjelmeland Corporation is considering dropping product S85U. Data from the company’s accounting system appear below. Sales$360,000Variable Expenses$158,000Fixed |
Manufacturing |
7. (TCO D) Rosiek Corporation uses part A55 in one of its products. The company’s accounting department reports the following costs of producing the 4,000 units of the part that are needed every year. Per Unit |
Direct Materials |
Direct Labor |
8. (TCO D) Manning Co. manufactures and sells trophies for winners of athletic and other events. Its manufacturing plant has the capacity to produce 18,000 trophies each month; current monthly production is 15,300 trophies. The company normally charges $141 per trophy. Cost data for the current level of production are shown below.
Variable Costs |
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$948,600 |
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$290,700 |
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Selling and Administrative |
$41,300 |
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Fixed Costs |
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$579,870 |
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$134,640 |
The company has just received a special one-time order for 900 trophies at $73 each. For this particular order, no variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs. Required: Should the company accept this special order? Why?