ACCT 505 PRACTICE QUIZ 2 | CORRECT ANSWERS

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ACCT 505 PRACTICE QUIZ 2 Student: ___________________________________________________________________________ 1. Return on investment (ROI) can be decomposed into the asset turnover and the A. gro... ss margin ratio. B. profit margin ratio. C. operating margin ratio. D. contribution margin ratio. 2. How will decreases in the following items affect return on investment (ROI)? A. a B. b C. c D. d 3. The CJP Company produces 10,000 units of item S10 annually at a total cost of $190,000. The XYZ Company has offered to supply 10,000 units of S10 per year for $18 per unit. If CJP accepts the offer, $4 per unit of the fixed overhead would be saved. In addition, some of CJP's facilities could be rented to a third party for $15,000 per year. What are the relevant costs for the "make" alternative? A. $160,000 B. $165,000 C. $175,000 D. $185,000 4. The following information is available about the Winter Division of Washburn Company. Washburn requires a return of 9% from all divisions. Required (take all calculations to four decimal places): a. Compute the ROI for the Winter Division. b. Compute the residual income for the Winter Division. 5. Bayside Wholesaling has the following data for its three divisions for the year. Required: a. Compute the divisional gross margin, operating income, and net income for each of the divisions. Assume taxes are 30%. b. Calculate the gross margin ratio for each division. c. Calculate the operating margin ratio for each division. d. Calculate the profit margin ratio for each division. 6. The XYZ Manufacturing Company has two divisions: Division X and Division Y. Operating results for the two divisions for last year were as follows. Division X Division Y Residual income $98,400 $27,200 Net operating income $188,600 $115,600 Average operating assets $820,000 $680,000 Sales $1,640,000 $1,445,000 Profit margin 11.5% 8.0% Cost of capital 11.0% 13.0% Corporate headquarters is offering an investment opportunity to each of the divisions. The opportunity will yield an operating income of $35,000, based on an average operating investment of $246,000. Required: a. If the divisions are being evaluated using return on investment (ROI), what will be the decision (accept or reject) of each division regarding this opportunity? Support your answer with the appropriate calculations. b. If the divisions are being evaluated using residual income, what will be the decision (accept or reject) of each division regarding this opportunity? Support your answer with the appropriate calculations. 7. The Pierce Company has gathered the following information for a unit of its most popular product. The above cost information is based on 10,000 units. Pierce currently sells 8,500 units for $62 per unit. A distributor has offered to buy 1,000 units at a price of $50 per unit. This special order would not disturb regular sales. Required: a. Calculate Pierce's change in operating profits if the special order is accepted. b. How many units of regular sales could be lost before this contract is not profitable? 8. Bruce Industries manufactures 200,000 components per year. The manufacturing cost of the components was determined as follows. An outside supplier has offered to sell the component for $3.40. If Bruce purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for $20,000. a. If Bruce purchases the component from the supplier instead of manufacturing it, the effect on income would be what? b. What is the maximum price Bruce would be willing to pay the outside supplier? 9. Tofte Industries manufactures 30,000 components per year. The manufacturing cost of the components was determined to be as follows. a. Assume that the fixed manufacturing overhead reflects the cost of Tofte's manufacturing facility. This facility cannot be used for any other purpose. An outside supplier has offered to sell the component to Tofte for $34. If Tofte Industries purchases the component from the outside supplier, the effect on income would be what? b. Assume Tofte Industries could avoid $80,000 of fixed manufacturing overhead if it purchases the component from an outside supplier. An outside supplier has offered to sell the component for $34. If Tofte purchases the component from the supplier instead of manufacturing it, the effect on income would be what? [Show More]

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