Reference no: EM13814378

Question1. A company that has a profit can increase its return on investment by 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.

 

Question 2.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   10% 20% 16.7% 80%

 

Question 3. Last year, the House of Orange had sales of $826,650, net operating income of $81,000, and operating assets of $84,000 at the beginning of the year and $90,000 at the end of the year. What was the company's turnover, rounded to the nearest tenth? 9.5 10.2 9.8 9.2

Question 4. 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?

Question 5. 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?

Question 6. The management of Thews Corporation is considering dropping product E28I. Data from the company's accounting system appear below.

Sales	$480,000
Variable Expenses	$202,000
Fixed Manufacturing Expenses	$158,000
Fixed Selling and Administrative Expenses	$130,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $86,000 of the fixed manufacturing expenses and $67,000 of the fixed selling and administrative expenses are avoidable if product E28I is discontinued.

Required:

i. What is the net operating income earned by product E28I according to the company's accounting system? Show your work!
ii. What would be the effect on the company's overall net operating income of dropping product E28I? Should the product be dropped? Show your work!

Question 7. 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
FixedManufacturing 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?

Question 8. 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?