Quiz #2

Question1.Question :(TCO D) A company that has a profit can increase its return on investment by

Student Answer:increasing sales revenue and operating expenses by the same dollar amount.

increasing average operating assets and operating expenses by the same dollar amount.

increasing sales revenue and operating expenses by the same percentage.

decreasing average operating assets and sales by the same percentage.

Points Received:0 of 5

Question2.Question :(TCO D) 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?

Student Answer: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.

Points Received:0 of 5

Question3.Question :(TCO D) For which of the following decisions are sunk costs relevant?

Student Answer:The decision to keep an old machine or buy a new one

The decision to sell a product at the split-off point or after further processing

The decision to accept or reject a special order offer

All of the above

None of the above

Points Received:0 of 5

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1.Question :(TCO D) Seebach Corporation has two major business segmentsApparel and Accessories. Data concerning those segments for June appear below.Sales revenues, Apparel $700,000

Variable expenses, Apparel$406,000

Traceable fixed expenses, Apparel$98,000

Sales revenues, Accessories$710,000

Variable expenses, Accessories$312,000

Traceable fixed expenses, Accessories $107,000

Common fixed expenses totaled $292,000 and were allocated as follows: $155,000 to the Apparel business segment and $137,000 to the Accessories business segment.

Required:

Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts.

Student Answer:

Points Received:0 of 15

Question2.Question :(TCO D) Eber Wares is a division of a major corporation. The following data are for the latest year of operations.Sales$30,000,000

Net Operating income$1,170,000

Average operating assets$8,000,000

The company's minimum required rate of return18%

Required:

i. What is the division's margin?

ii. What is the division's turnover?

iii. What is the division's ROI?

iv. What is the division's residual income?

Student Answer:

Points Received:0 of 15

Question3.Question :(TCO D) The management of Drummer Corporation is considering dropping product D84L. Data from the company's accounting system appear below.Sales$800,000

Variable Expenses$440,000

Fixed Manufacturing Expenses$248,000

Fixed Selling and Administrative Expenses$184,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $201,000 of the fixed manufacturing expenses and $156,000 of the fixed selling and administrative expenses are avoidable if product D84L is discontinued.

Required:

What would be the effect on the company's overall net operating income if product D84L were dropped? Should the product be dropped? Show your work!

Student Answer:

Points Received:0 of 15

Question4.Question :(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$2.80

Direct Labor$6.30

Variable Overhead$8.50

Supervisor's Salary$2.60

Depreciation of Special Equipment$6.80

Allocated General Overhead$6.10

An outside supplier has offered to make the part and sell it to the company for $32.30 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $4,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part A55 could be used to make more of one of the company's other products, generating an additional segment margin of $26,000 per year for that product.

Required:

i. Prepare a report that shows the effect on the company's total net operating income of buying part A55 from the supplier rather than continuing to make it inside the company.

ii. Which alternative should the company choose?

Student Answer:

Points Received:0 of 15

Question5.Question :(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

Direct Materials$948,600

Direct Labor$290,700

Selling and Administrative$41,300

Fixed Costs

Manufacturing$579,870

Selling and Administrative$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?

Student Answer: