8 PROBLEMS ON ACCOUNTING :

QUESTIONS :

1. Which of the following performance measures will decrease if there is an increase in the accounts receivable?

	Return on Investment	Residual 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	$50.000
Net operating income	$5,000
Contribution margin	$20,000
Average operating assets	$25,000
Stockholder'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 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?

5. Ferro Wares is a division of a major corporation. The following data are for the latest year of operations.

Sales	$33,040,000
Net Operating Income	$1,453,760
Average Operating Assets	$8,000,000
The company's minimum required rate of return	18%

Required:

i. What is the division's ROI?

ii. What is the division's residual income? (Points : 15)

6. Tjelmeland Corporation is considering dropping product S85U. Data from the company's accounting system appear below.

Sales	$360,000
Variable Expenses	$158,000
Fixed Manufacturing Expenses	$119,000
Fixed Selling and Administrative Expenses	$94,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $55,000 of the fixed manufacturing expenses and $71,000 of the fixed selling and administrative expenses are avoidable if product S85U is discontinued.

Required:

i. According to the company's accounting system, what is the net operating income earned by product S85U? Show your work!

ii. What would be the effect on the company's overall net operating income of dropping product S85U? Should the product be dropped? Show your work!

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	$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?

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
	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?

13 years ago

Report issue

SURE A+ GRADE :

NOT RATED

Purchase the answer to view it

8 PROBLEMS ON ACCOUNTING :

acct505