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acct505_week_6_quiz_-_copy.docxACCT505 Week 6 : Segment Reporting and Relevant Costs for Decisions – Quiz – START TIME 7:07 pm PST
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. |
10% 20% 16.7% 80% |
10% 15% 60% 30% |
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Question 1. 1. (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?
(Points : 15)
Question 2. 2. (TCO D) Wryski Corporation had net operating income of $150,000 and average operating assets of $500,000. The company requires a return on investment of 19%.
Required:
i. Calculate the company's current return on investment and residual income.
ii. The company is investigating an investment of $400,000 in a project that will generate annual net operating income of $78,000. What is the ROI of the project? What is the residual income of the project? Should the company invest in this project? (Points : 15)
Question 3. 3. (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! (Points : 15)
Question 4. 4. (TCO D) Fouch Company makes 30,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows.
Direct Materials $15.70
Direct Labor $17.50
Variable Manufacturing Overhead $4.50
Fixed Manufacturing Overhead $14.60
Unit Product Cost $52.30
An outside supplier has offered to sell the company all of these parts it needs for $51.90 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $219,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $6.20 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.
Required:
i. How much of the unit product cost of $52.30 is relevant in the decision of whether to make or buy the part?
ii. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?
iii. What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 30,000 units required each year? (Points : 15)
Question 5. 5. (TCO D) Biello Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 15,000 medals each month; current monthly production is 14,250 medals. The company normally charges $115 per medal. Cost data for the current level of production are shown below.
Variable Costs
Direct Materials $969,000
Direct Labor $270,750
Selling and Administrative $270,075
Fixed Costs
Manufacturing $370,550
Selling and Administrative $89,775
The company has just received a special one-time order for 600 medals at $102 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? (Points : 15)
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