Reference no: EM133130867

Question 1 - Meet's Auto Shop Inc. allows its divisions to operate as autonomous units. Their results for the current year were as follows:

	Sport	Terrain	City
Revenues	$1,700,000	$800,000	$6,000,000
Current assets	230,000	40,000	410,000
Capital assets	870,000	660,000	1,590,000
Current liabilities	100,000	100,000	500,000
Net operating income	210,000	37,000	470,000
After-tax income	188,400	36,400	484,400
Weighted average cost of capital	10%	10%	10%

For each division compute (to two decimal) the:

a. The margin %?

b. Return on investment (to two decimal) %?

c. Economic value added?

d. Residual income?

e. Turnover (to two decimal)?

Question 2 - Stark, Inc., produces and sells a unique robot antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been reported for the first month of the new plant's operation:

Selling price	$50
Beginning inventory	0
Units produced	35,000
Units sold	30,000
Selling price per unit	$50
Selling and Admin expenses:
Variable per unit	$2
Fixed (total)	$360,000
Manufacturing costs:
Direct material cost per unit	$9
Direct labour cost per unit	$8
Variable overhead cost per unit	$3
Fixed overhead cost (Total)	$595,000

Management is anxious to see how profitable the new antenna will be and has asked that an income statement be prepared for the month. Assume that direct labour is a variable cost.

Required -

a. Assuming that the company uses absorption costing, compute the unit product cost and prepare an income statement.

b. Assuming that the company uses variable costing, compute the unit product cost and prepare an income statement.

c. Explain the reason for any difference in the ending inventories under the two costing methods and the impact of this difference on reported operating income.