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Quiz #2

Question 1 Question :
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Student Answer:

(TCO D) 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.

Points Received:
Question 2 Question :
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Student Answer:

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(TCO D) 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.

Points Received:
Question 3 Question :
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Student Answer:

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(TCO D) For which of the following decisions are sunk costs relevant?
The decision to keep an old machine or buy a new one

The decision to sell a product at the split-off point or after further


processing
The decision to accept or reject a special order offer
All of the above
None of the above

Points Received:

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1 2

Page:

1. Question :
(TCO D) Seebach Corporation has two major business segments
Apparel and Accessories. Data concerning those segments for June
appear below.

Sales revenues, Apparel

$700,000

Variable expenses, Apparel

$406,000

Traceable fixed expenses, Apparel

$98,000

Sales revenues, Accessories

$710,000

Variable expenses, Accessories

$312,000

Traceable fixed expenses, Accessories

$107,000

Common fixed expenses totaled $292,000 and were allocated as follows:


$155,000 to the Apparel business segment and $137,000 to the
Accessories business segment.
Required:
Prepare a segmented income statement in the contribution format for the

company. Omit percentages; show only dollar amounts.

Student Answer:
Points Received:
Question 2 Question :
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(TCO D) Eber Wares is a division of a major corporation. The following


data are for the latest year of operations.
Sales
Net Operating income
Average operating assets
The company's minimum required rate of return

$30,000,000
$1,170,000
$8,000,000
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?

Student Answer:
Points Received:
Question 3 Question :
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(TCO D) The management of Drummer Corporation is considering


dropping product D84L. Data from the company's accounting system
appear below.
Sales
Variable Expenses
Fixed Manufacturing Expenses
Fixed Selling and Administrative Expenses

$800,000
$440,000
$248,000
$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!

Student Answer:
Points Received:
Question 4 Question :
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(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
Direct Labor
Variable Overhead
Supervisor's Salary
Depreciation of Special Equipment
Allocated General Overhead

$2.80
$6.30
$8.50
$2.60
$6.80
$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?

Student Answer:
Points Received:
Question 5 Question :
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0 of 15

(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
Direct Labor
Selling and Administrative
Fixed Costs
Manufacturing
Selling and Administrative

$948,600
$290,700
$41,300
$579,870
$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?

Student Answer: