Reference no: EM13182376

1. Using the data from the Koko Company, determine the divisional income from operations for the A and B regions.

	A Region	B Region
Sales	$600,000	$900,000
Cost of goods sold	200,000	350,000
Selling expenses	150,000	275,000
Service department expenses
Purchasing			$80,000
Payroll accounting			40,000

Allocate service department expenses proportional to the sales of each region.

2. The sales, income from operations, and invested assets for each division of Winston Company are as follows:

	Sales	Income from Operations	Invested Assets
Division C	$5,000,000	$630,000	$3,900,000
Division D	6,800,000	760,000	4,300,000
Division E	3,750,000	750,000	7,250,000

Management has established a minimum rate of return for invested assets of 8%.

(a)	Determine the residual income for each division.
(b)	Based on residual income, which of the divisions is the most profitable?

3. Pnok Company has been purchasing a component, Part Q, for $18.90 a unit. Pnok is currently operating at 70% of capacity and no significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Part Q, determined by absorption costing methods, is estimated as follows:

Direct materials	$11.25
Direct labor	4.50
Variable factory overhead	1.12
Fixed factory overhead	3.15
Total	$20.02

Prepare a differential analysis report, dated March 12 of the current year, on the decision to make or buy Part Q.

4. FDE Manufacturing Company has a normal plant capacity of 37,500 units per month. Because of an extra-large quantity of inventory on hand, it expects to produce only 30,000 units in May. Monthly fixed costs and expenses are $112,500 ($3 per unit at normal plant capacity) and variable costs and expenses are $8.25 per unit. The present selling price is $13.50 per unit. The company has an opportunity to sell 7,500 additional units at $9.90 per unit to an exporter who plans to market the product under its own brand name in a foreign market. The additional business is therefore not expected to affect the regular selling price or quantity of sales of FDE Manufacturing Company.

Prepare a differential analysis report, dated April 21 of the current year, on the proposal to sell at the special price.