Question 1:
Floppy Disk Inc. produces and sells recordable DVD and Blu-Ray packs. Revenue and cost information relating to the products follow:
Product
|
|
DVD
|
Blu-Ray
|
|
Selling price per pack
|
$8.00
|
$20.00
|
|
Variable expenses per pack
|
$3.20
|
$10.50
|
|
Traceable fixed expenses per year
|
$138,000
|
$45,000
|
Common fixed expenses in the company total $105,000 annually. Last year the company produced and sold 37,500 DVD packs and 18,000 Blu-Ray packs.
Required:
- Prepare a contribution-format income statement for the year, segmented by product lines.
Question 2:
Larinore Corporation has a Castings Division that does casting work of various types. The company's Machine Products Division has asked the Castings Division to provide it with 20,000 special castings each year on a continuing basis. The special castings would require $10 per unit in variable production costs. The Machine Products Division has a bid from an outside supplier of $29 per unit for the castings.
In order to have time and space to produce the new castings, the Castings Division would have to cut back production of another casting: the RB4, which it presently is producing. The RB4 sells for $30 per unit, and requires $12 per unit in variable production costs. Boxing and shipping costs of the RB4 are $4 per unit. Boxing and shipping costs for the new special casting would be only $1 per unit. The company is now producing and selling 100,000 units of the RB4 each year. Production and sales of this casting would drop by 20% if the new casting is produced.
Required:
- What is the range of transfer prices within which both the divisions' profits would increase as a result of agreeing to the transfer of 20,000 castings per year from the Castings Division to the Machine Products Division?
- Is it in the best interests of Larinore Corporation for this transfer to take place? Explain.
Question 3:
Financial data for Beaker Company for last year appear below:
|
|
Beginning Balance
|
Ending Balance
|
|
Assets:
|
|
|
|
Cash
|
$50,000
|
$70,000
|
|
Accounts receivable
|
20,000
|
25,000
|
|
Inventory
|
30,000
|
35,000
|
|
Plant and equipment (net)
|
120,000
|
110,00
|
|
Total Assets
|
$220,000
|
$240,000
|
|
Beginning Balance
|
Ending Balance
|
|
Liabilities and owners' equity
|
|
|
|
Accounts payable
|
$70,000
|
$90,000
|
|
Long-term debt
|
250,000
|
250,000
|
|
Owners' equity
|
(100,000)
|
(100,000)
|
|
Total liabilities and owners' equity
|
$220,000
|
$240,000
|
|
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
|
|
Operating income
|
|
$22,100
|
Required:
- Compute the company's margin, turnover, and return on investment for last year.
Question 4:
Outback Ltd. of Australia has two divisions, one in Perth and one in Darwin. Selected data on the two divisions follow:
|
|
Perth
|
Darwin
|
|
Sales
|
$9,000,000
|
$20,000,000
|
|
Operating income
|
$630,000
|
$1,800,000
|
|
Average operating assets
|
$3,000,000
|
$10,000,000
|
Required:
- Compute the return on investment (ROI) for each division.
- Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 16%. Compute the residual income for each division.
- Is the Darwin Division's greater residual income an indication that it is better managed? Explain.
Question 5:
Maximum Efficiency Inc. is interested in cutting the amount of time between when a customer places an order and when the order is completed. For the first quarter of the year, the following data were reported:
|
Inspection time
|
0.3
|
|
Process time
|
3.2
|
|
Wait time
|
12.0
|
|
Queue time
|
1.0
|
|
Move time
|
0.5
|
Required:
- Compute the throughput time.
- Compute the manufacturing cycle efficiency (MCE) for the quarter.
- What percentage of the throughput time was spent on non-value-added activities?
- Compute the delivery cycle time.
- If by using lean production all queue time can be eliminated in production, what will be the new MCE?