|
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 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?