ACCT 505 WEEK 6 QUIZ-2
Grade Details - All Questions
1. Question : (TCO D) A company that has a profit can increase its return on investment by
Student Answer: increasing sales revenue and operating expense
...
ACCT 505 WEEK 6 QUIZ-2
Grade Details - All Questions
1. 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.
Instructor Explanation: Chapter 12
Points Received: 5 of 5
Comments:
2. Question : (TCO D) Given the following data, what would ROI be?
Sales $50,000
Net operating income $5,000
Contribution margin $20,000
Average operating assets $25,000
Stockholder's equity $15,000
Student Answer: 10%
20%
16.7%
80%
Instructor Explanation: See Chapter 12. ROI = Net operating income / Average operating assets = $5,000 / $25,000 = 20.0%
Points Received: 5 of 5
Comments:
3. Question : (TCO D) Given the following data: What is the return on investment (ROI)?
Sales $150.000
Net operating income $15,000
Contribution margin $30,000
Average operating assets $50,000
Stockholder's equity $100,000
Student Answer: 10%
15%
60%
30%
Instructor Explanation: ROI = Net operating income / Average operating assets = $15,000 / $50,000 = 30.0%
Points Received: 5 of 5
Comments:
1. Question : (TCO D) Financial data for Beaker Company for last year appear below.
Beaker Company
Statement of Financial Position
Beginning Ending
Balance Balance
Assets
Cash $50,000 $70,000
Accounts receivable 20,000 25,000
Inventory 30,000 35,000
Plant and Equipment (net) 120,000 110,000
Investment in Cedar Company 80,000 100,000
Land (undeveloped) 170,000 170,000
Total Assets $470,000 510,000
Liabilities and Owners' Equity
Accounts payable $70,000 $90,000
Long-term debt 250,000 250,000
Owner's equity 150,000 170,000
Total liabilities and owner's equity $470,000 $510,000
Beaker Company
Income Statement
Sales $414,000
Less Operating Expenses 351,900
Net Operating Income 62,100
Less Interest and Taxes
Interest Expense $30,000
Tax Expense 10,000 40,000
Net 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?
2. 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 return 18%
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?
3. 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!
4. Question : (TCO D) Part F77 is used in one of Wilcutt Corporation's products. The company's Accounting Department reports the following costs of producing the 7,000 units of the part that are needed every year.
Per Unit
Direct Materials $7.00
Direct Labor $6.00
Variable Overhead $5.60
Supervisor's Salary $4.70
Depreciation of Special Equipment $1.50
Allocated General Overhead $5.40
An outside supplier has offered to make the part and sell it to the company for $28.30 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 $9,000 of these allocated general overhead costs would be avoided.
Required:
i. Prepare a report that shows the effect on the company's total net operating income of buying part F77 from the supplier rather than continuing to make it inside the company.
ii. Which alternative should the company choose?
5. Question : (TCO D) A customer has asked Clougherty Corporation to supply 4,000 units of product M97, with some modifications, for $40.10 each. The normal selling price of this product is $48.00 each. The normal unit product cost of product M97 is computed as follows.
Direct Materials $18.50
Direct Labor $1.20
Variable manufacturing overhead $8.40
Fixed manufacturing overhead $3.90
Unit product cost $32.00
Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like some modifications made to product M97 that would increase the variable costs by $5.70 per unit and that would require a one-time investment of $31,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order.
Required:
Determine the effect on the company's total net operating income of accepting the special order. Show your work!
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