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Deano 1. Products is a division of a major corporation. The following data are for the last year of operations: The division's turnover is closest to: A) 32.26 B) 2.89 C) 0.10 D) 3.18 Feedback: Turnover = Sales $6,000,000 = 3.18 Average operating assets = $19,080,000 2. Ieso Company has two stores: J and K. During November, Ieso Company reported a net operating income of $30,000 and sales of $450,000. The contribution margin in Store J was $100,000, or 40% of sales. The segment margin in Store K was $30,000, or 15% of sales. Traceable fixed expenses are $60,000 in Store J, and $40,000 in Store K. The segment margin ratio in Store J was: A) 16% B) 24% C) 40% D) 60% Feedback: *Given Solve in the following steps: $60,000 + $40,000 = $100,000 $30,000 15% = $200,000 $450,000 - $200,000 = $250,000 $250,000 - $100,000 = $150,000 $30,000 + $40,000 = $70,000 $100,000 + $70,000 = $170,000 $450,000 - $170,000 = $280,000 $280,000 - $150,000 = $130,000 $170,000 - $100,000 = $70,000 $70,000 - $30,000 = $40,000 Total Fixed Expenses $40,000 + $100,000 = $140,000 Segment Margin Ratio - Store J $40,000 $250,000 = 16% 3. Ceder Products is a division of a major corporation. Last year the division had total sales of $21,520,000, net operating income of $538,000, and average operating assets of $8,000,000. The company's minimum required rate of return is 18%. The division's turnover is closest to: A) 2.52 B) 0.07 C) 40.00 D) 2.69 Feedback: Turnover = Sales Average operating assets = $21,520,000 $8,000,000 = 2.69 4. Return on investment (ROI) is equal to the margin multiplied by: A) sales. B) turnover. C) average operating assets. D) residual income. 5. Delmar Corporation is considering the use of residual income as a measure of the performance of its divisions. What major disadvantage of this method should the company consider before deciding to institute it? A) this method does not take into account differences in the size of divisions. B) investments may be adopted that will decrease the overall return on investment. C) the minimum required rate of return may eliminate desirable investments. D) residual income does not measure how effectively the division manager controls costs. 6. The Northern Division of the Smith Company had average operating assets totaling $150,000 last year. If the minimum required rate of return is 12%, and if last year's net operating income at Northern was $20,000, then the residual income for Northern last year was: A) $20,000 B) $l8,000 C) $5,000 D) $2,000 Feedback: Residual income = Net operating income - Minimum required rate of return x Average operating assets = $20,000 - (12% x $150,000) = $2,000 7. Ieso Company has two stores: J and K. During November, Ieso Company reported a net operating income of $30,000 and sales of $450,000. The contribution margin in Store J was $100,000, or 40% of sales. The segment margin in Store K was $30,000, or 15% of sales. Traceable fixed expenses are $60,000 in Store J, and $40,000 in Store K. Ieso Company's total fixed expenses for the year were: A) $40,000 B) $100,000 C) $140,000 D) $170,000 Feedback: *Given Solve in the following steps: $60,000 + $40,000 = $100,000 $30,000 15% = $200,000 $450,000 - $200,000 = $250,000 $250,000 - $100,000 = $150,000 $30,000 + $40,000 = $70,000 $100,000 + $70,000 = $170,000 $450,000 - $170,000 = $280,000 $280,000 - $150,000 = $130,000 $170,000 - $100,000 = $70,000 $70,000 - $30,000 = $40,000 Total Fixed Expenses $40,000 + $100,000 = $140,000 Segment Margin Ratio - Store J $40,000 $250,000 = 16% 8. The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow: Suppose the manager of Axle desires an annual residual income of $45,000. In order to achieve this, Axle should sell how many units per year? A) 14,500 B) 16,750 C) 18,250 D) 19,500 Feedback: Residual income = Net operating income - Minimum required rate of return x Average operating assets $45,000 = Net operating income - (12% x $750,000) Net operating income = $135,000 Unit contribution margin = $50 - $30 = $20 Number of units to be sold = (Fixed costs + Target net operating income) contribution margin = ($200,000 + $135,000) $20 = 16,750 units Unit 9. Data for September for Mossman Corporation and its two major business segments, North and South, appear below: In addition, common fixed expenses totaled $319,000 and were allocated as follows: $160,000 to the North business segment and $159,000 to the South business segment. The contribution margin of the South business segment is: A) $211,000 B) $673,000 C) $51,000 D) $392,000 10. The following information relates to the Cranberry Division of Innovative Bologna Corporation for last year: What was the Cranberry Division's residual income for last year? A) $26,400 B) $36,000 C) $41,400 D) $51,000 Feedback: Residual income = Net operating income - Minimum required rate of return x Average operating assets = $60,000 - (12% x $280,000) = $26,400 11. Harstin Corporation has provided the following data: The return on investment for the past year was: A) 28% B) 20% C) 36% D) 8% Feedback: ROI = Net operating income $250,000 = 20% Average operating assets = $50,000 12. Bonniwell Corporation has two divisions: the Delta Division and the Alpha Division. The Delta Division has sales of $620,000, variable expenses of $359,600, and traceable fixed expenses of $229,200. The Alpha Division has sales of $820,000, variable expenses of $541,200, and traceable fixed expenses of $172,900. The total amount of common fixed expenses not traceable to the individual divisions is $122,000. What is the company's net operating income? A) $539,200 B) $15,100 C) $137,100 D) $417,200 Feedback: *Given Solve in the following steps: 1) $620,000 - $359,600 = $260,400; $820,000 - $541,200 = $278,800 2) $260,400 + $278,800 = $539,200 3) $229,200 + $172,900 = $402,100 4) $539,200 - $402,100 = $137,100 5) $137,100 - $122,000 = $15,100 13. Niesen Corporation has two major business segments-Consumer and Commercial. Data for the segment and for the company for August appear below: In addition, common fixed expenses totaled $282,000 and were allocated as follows: $127,000 to the Consumer business segment and $155,000 to the Commercial business segment. The contribution margin of the Commercial business segment is: A) $146,000 B) $169,000 C) $546,000 D) $296,000 14. Harstin Corporation has provided the following data: The turnover for the past year was: A) 2.5 B) 6.94 C) 2.98 D) 1.4 Feedback: Turnover = Sales 2.5 Average operating assets = $625,000 $250,000 = 15. Campion Company has two divisions, A and B. The following data pertain to operations in May: If common fixed expenses were $10,000, total fixed expenses were: A) $10,000 B) $30,500 C) $40,500 D) $65,500 Feedback: *Given Solve in the following steps: 1) 100% - 70% = 30%; 100% - 60% = 40% 2) $50,000 x 30% = $15,000; $75,000 x 40% = $30,000 3) $15,000 - $7,000 = $8,000; $30,000 - $7,500 = $22,500 4) $30,500 + $10,000 = $40,500 16. The concept of economic value added (EVA) is most similar to: A) residual income. B) transfer pricing. C) segment reporting. D) return on investment. 17. Johnson Company operates two plants, Plant A and Plant B. Johnson Company reported for the year just ended a contribution margin of $50,000 for Plant A. Plant B had sales of $200,000 and a contribution margin ratio of 30%. Net operating income for the company was $20,000 and traceable fixed costs for the two plants totaled $50,000. Johnson Company's common fixed costs for last year were: A) $50,000 B) $70,000 C) $40,000 D) $90,000 Feedback: *Given Solve in the following steps: 1) $200,000 x 30% = $60,000 2) $50,000 + $60,000 = $110,000 3) $110,000 - $50,000 = $60,000 4) $60,000 - $20,000 = $40,000 18. The Holmes Division recorded operating data as follows for the past year: For the past year, the minimum required rate of return was: A) 11% B) 12% C) 13% D) 14% Feedback: Residual income = Net operating income - (Minimum required rate of return x Average operating assets) $13,000 = $25,000 - (Minimum required rate of return x $100,000) Minimum required rate of return = 12% 19. Division A makes a part with the following characteristics: Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $24 each. Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price. If Division A sells the parts to Division B at $24 per unit (Division B's outside price), the company as a whole will be: A) better off by $5,000 each period. B) worse off by $15,000 each period. C) worse off by $5,000 each period. D) There will be no change in the status of the company as a whole. Feedback: Since the company's selling the units currently for $25, if they sell internally for $24, they will be worse off by $1 per unit, or $5,000 in total ($1 x 5,000). 20. The Commando Motorcycle Company has decided to become decentralized and split its operations into two divisions, Motor and Assembly. Both divisions will be treated as investment centers. The Motor Division is currently operating at its capacity of 30,000 motors per year. Motor's costs at this level of production are as follows: Motor sells 10,000 of its motors to a snowmobile manufacturer and transfers the remaining 20,000 motors to the Assembly Division. The two divisions are currently in a debate over an appropriate transfer price to charge for the 20,000 motors. Motor currently charges the snowmobile manufacturer $200 per motor. The final selling price of the motorcycles that Commando produces is $7,200 per cycle. This selling price will not change regardless of the transfer price charged between the two divisions. Motor has no market for the 20,000 motors if they are not transferred to Assembly. Variable selling and administrative costs are incurred on both internal and external sales. According to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division? A) $35 per motor B) $105 per motor C) $125 per motor D) $140 per motor Feedback: (Note: Due limitations in fonts and word processing software, > and < signs must be used in this solution rather than "greater than or equal to" and "less than or equal to" signs.) From the perspective of the selling division, profits would increase as a result of the transfer if and only if: Transfer price > Variable cost + Opportunity cost There would be no lost sales as a result of this transfer so the opportunity cost would be zero. Therefore, Transfer price > ($30 + $50 + $20 + $5) = $105. 1. Data for September for Mossman Corporation and its two major business segments, North and South, appear below: In addition, common fixed expenses totaled $319,000 and were allocated as follows: $160,000 to the North business segment and $159,000 to the South business segment. The contribution margin of the South business segment is: A) $211,000 B) $673,000 C) $51,000 D) $392,000 Feedback: Points Earned: 0.0/1.0 Correct Answer(s): D 2. A company's average operating assets are $220,000 and its net operating income is $44,000. The company invested in a new project, increasing average assets to $250,000 and increasing its net operating income to $49,550. What is the project's residual income if the required rate of return is 20%? A) ($450) B) $450 C) $600 D) ($600) Feedback: Project average operating assets = $250,000 - $220,000 = $30,000 Project net operating income = $49,550 - $44,000 = $5,550 Residual income = Net operating income - Minimum required rate of return x Average operating assets = $5,550 - (20% x $30,000) = ($450) Points Earned: 0.0/1.0 Correct Answer(s): A 3. Deano Products is a division of a major corporation. The following data are for the last year of operations: The division's margin is closest to: A) 9.9% B) 3.1% C) 34.5% D) 31.4% Feedback: Margin = Net operating income Points Earned: 0.0/1.0 Correct Answer(s): B Sales = $591,480 $19,080,000 = 3.1% 4. The following information is available on Company A: Company A's residual income is: A) $9,000 B) $21,000 C) $45,000 D) $24,000 Feedback: Residual income = Net operating income - Minimum required rate of return x Average operating assets = $36,000 - (15% x $180,000) = $9,000 Points Earned: 0.0/1.0 Correct Answer(s): A 5. Howe Company increased its ROI from 20% to 25%. Net operating income and sales remained at their previous levels of $40,000 and $1,000,000 respectively. The increase in ROI was attributed to a reduction in operating assets brought about by the sale of obsolete inventory at cost (the proceeds from the sale were used to reduce bank loans). By how much was inventory reduced? A) $8,000 B) $40,000 C) $10,000 D) it is impossible to determine from the data given. Feedback: Margin = Net operating income Sales = $40,000 $1,000,000 = 4.0% Turnover = $40,000 Average operating assets ROI = Margin x Turnover 20% = 4.0% x ($1,000,000 Average operating assets) Average operating assets = $200,000 25% = 4.0% x ($1,000,000 Average operating assets) Average operating assets = $160,000 Change in average operating assets = $200,000 - $160,000 = $40,000 increase in average operating assets Points Earned: 0.0/1.0 Correct Answer(s): B 6. The Consumer Products Division of Garafalo Corporation had average operating assets of $300,000 and net operating income of $46,900 in March. The minimum required rate of return for performance evaluation purposes is 16%. What was the Consumer Products Division's residual income in March? A) $7,504 B) $1,100 C) -$7,504 D) -$1,100 Feedback: Residual income = Net operating income - Minimum required rate of return x Average operating assets = $46,900 - (16% x $300,000) = -$1,100 Points Earned: 0.0/1.0 Correct Answer(s): D 7. Higado Confectionery Corporation has a number of store locations throughout North America. In income statements segmented by store, which of the following would be considered a common fixed cost? A) store manager salaries B) store building depreciation expense C) the cost of corporate advertising aired during the Super Bowl D) all of these Points Earned: 0.0/1.0 Correct Answer(s): C 8. Niesen Corporation has two major business segments-Consumer and Commercial. Data for the segment and for the company for August appear below: In addition, common fixed expenses totaled $282,000 and were allocated as follows: $127,000 to the Consumer business segment and $155,000 to the Commercial business segment. A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is: A) $110,000 B) $392,000 C) $546,000 D) -$172,000 Feedback: Points Earned: 0.0/1.0 Correct Answer(s): A 9. Deano Products is a division of a major corporation. The following data are for the last year of operations: The division's turnover is closest to: A) 32.26 B) 2.89 C) 0.10 D) 3.18 Feedback: Turnover = Sales Average operating assets = $19,080,000 Points Earned: 0.0/1.0 Correct Answer(s): D $6,000,000 = 3.18 10. Largo Company recorded for the past year sales of $750,000 and average operating assets of $375,000. What is the margin that Largo Company needed to earn in order to achieve an ROI of 15%? A) 2.00% B) 15.00% C) 9.99% D) 7.50% Feedback: Turnover = Sales Average operating assets Turnover = $750,000 $375,000 = 2.0 ROI = Margin x Turnover 15% = Margin x 2.0 Margin = 7.50% Points Earned: 0.0/1.0 Correct Answer(s): D 11. The concept of economic value added (EVA) is most similar to: A) residual income. B) transfer pricing. C) segment reporting. D) return on investment. Points Earned: 0.0/1.0 Correct Answer(s): A 12. Delmar Corporation is considering the use of residual income as a measure of the performance of its divisions. What major disadvantage of this method should the company consider before deciding to institute it? A) this method does not take into account differences in the size of divisions. B) investments may be adopted that will decrease the overall return on investment. C) the minimum required rate of return may eliminate desirable investments. D) residual income does not measure how effectively the division manager controls costs. Points Earned: 0.0/1.0 Correct Answer(s): A 13. Licuado Juice Company has four product lines; Orange, Tomato, Carrot, and Grape. Shown below is last year's income statement segmented by product line: Net operating income last year for Licuado Company as a whole was $24,800. Licuado is considering the implementation of a $5,000 advertising program specifically targeted at one of the four product lines. The program is expected to increase sales for any one of the product lines by $12,000. If the goal is to maximize the company's net operating income, for which product line should Licuado implement the advertising program? A) Orange B) Tomato C) Carrot D) Grape E) any one of the product lines; the effect on net operating income will be identical Feedback: Points Earned: 0.0/1.0 Correct Answer(s): B 14. The following information is available on Company A: Company A's return on investment (ROI) is: A) 4% B) 15% C) 20% D) 36% Feedback: ROI = Net operating income 20% Points Earned: 0.0/1.0 Correct Answer(s): C Average operating assets = $36,000 $180,000 = 15. Ieso Company has two stores: J and K. During November, Ieso Company reported a net operating income of $30,000 and sales of $450,000. The contribution margin in Store J was $100,000, or 40% of sales. The segment margin in Store K was $30,000, or 15% of sales. Traceable fixed expenses are $60,000 in Store J, and $40,000 in Store K. The segment margin ratio in Store J was: A) 16% B) 24% C) 40% D) 60% Feedback: *Given Solve in the following steps: $60,000 + $40,000 = $100,000 $30,000 15% = $200,000 $450,000 - $200,000 = $250,000 $250,000 - $100,000 = $150,000 $30,000 + $40,000 = $70,000 $100,000 + $70,000 = $170,000 $450,000 - $170,000 = $280,000 $280,000 - $150,000 = $130,000 $170,000 - $100,000 = $70,000 $70,000 - $30,000 = $40,000 Total Fixed Expenses $40,000 + $100,000 = $140,000 Segment Margin Ratio - Store J $40,000 Points Earned: 0.0/1.0 Correct Answer(s): A $250,000 = 16% 16. Ceder Products is a division of a major corporation. Last year the division had total sales of $21,520,000, net operating income of $538,000, and average operating assets of $8,000,000. The company's minimum required rate of return is 18%. The division's return on investment (ROI) is closest to: A) 0.2% B) 6.7% C) 1.8% D) 18.0% Feedback: ROI = Net operating income = 6.725% Average operating assets = $538,000 $8,000,000 Points Earned: 0.0/1.0 Correct Answer(s): B 17. Kulp Corporation has two major business segments-East and West. In July, the East business segment had sales revenues of $900,000, variable expenses of $441,000, and traceable fixed expenses of $171,000. During the same month, the West business segment had sales revenues of $450,000, variable expenses of $234,000, and traceable fixed expenses of $45,000. The common fixed expenses totaled $321,000 and were allocated as follows: $180,000 to the East business segment and $141,000 to the West business segment. The contribution margin of the West business segment is: A) $108,000 B) $675,000 C) $288,000 D) $216,000 Feedback: *Given Solve in the following steps: $450,000 - $234,000 = $216,000 $900,000 - $441,000 = $459,000; $450,000 - $234,000 = $216,000 $459,000 - $171,000 = $288,000; $216,000 - $45,000 = $171,000 $288,000 + $171,000 = $459,000 $459,000 - $321,000 = $138,000 Points Earned: 0.0/1.0 Correct Answer(s): D 18. In January, the Universal Solutions Division of Zima Corporation had average operating assets of $520,000 and net operating income of $97,600. The company uses residual income, with a minimum required rate of return of 18%, to evaluate the performance of its divisions. What was the Universal Solutions Division's residual income in January? A) $4,000 B) ($4,000) C) $17,568 D) ($17,568) Feedback: Residual income = Net operating income - Minimum required rate of return x Average operating assets = $97,600 - (18% x $520,000) = $4,000 Points Earned: 0.0/1.0 Correct Answer(s): A 19. Part WY4 costs the Eastern Division of Tyble Corporation $26 to make-direct materials are $10, direct labor is $4, variable manufacturing overhead is $9, and fixed manufacturing overhead is $3. The Eastern Division can sell all of Part WY4 they can make to other companies for $30. The Western Division of Tyble Corporation can use Part WY4 in one of its products. What is the lowest transfer price at which the Eastern Division would be willing to sell Part WY4 to the Central Division? A) $30 B) $26 C) $23 D) $27 Feedback: (Note: Due limitations in fonts and word processing software, > and < signs must be used in this solution rather than "greater than or equal to" and "less than or equal to" signs.) From the perspective of the selling division, profits would increase as a result of the transfer if and only if: Transfer price > Variable cost + Opportunity cost The opportunity cost is the contribution margin on the lost sales, divided by the number of units transferred: Opportunity cost = $30 - $10 - $4 - $9 = $7 each Therefore, Transfer price > $23 + $7 = $30. Points Earned: 0.0/1.0 Correct Answer(s): A 20. Division A makes a part with the following characteristics: Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $24 each. Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price. If Division A sells the parts to Division B at $24 per unit (Division B's outside price), the company as a whole will be: A) better off by $5,000 each period. B) worse off by $15,000 each period. C) worse off by $5,000 each period. D) There will be no change in the status of the company as a whole. Feedback: Since the company's selling the units currently for $25, if they sell internally for $24, they will be worse off by $1 per unit, or $5,000 in total ($1 x 5,000). Points Earned: 0.0/1.0 Correct Answer(s): C 1. Deskin Corporation uses residual income to evaluate the performance of its divisions. The company's minimum required rate of return is 19%. In February, the Commercial Products Division had average operating assets of $780,000 and net operating income of $139,800. What was the Commercial Products Division's residual income in February? A) -$8,400 B) -$26,562 C) $8,400 D) $26,562 Feedback: Residual income = Net operating income - Minimum required rate of return x Average operating assets = $139,800 - (19% x $780,000) = -$8,400 Points Earned: 0.0/1.0 Correct Answer(s): A 2. Data for September for Mossman Corporation and its two major business segments, North and South, appear below: In addition, common fixed expenses totaled $319,000 and were allocated as follows: $160,000 to the North business segment and $159,000 to the South business segment. A properly constructed segmented income statement in a contribution format would show that the segment margin of the North business segment is: A) $211,000 B) $51,000 C) $259,000 D) $121,000 Feedback: Points Earned: 0.0/1.0 Correct Answer(s): A 3. Kulp Corporation has two major business segments-East and West. In July, the East business segment had sales revenues of $900,000, variable expenses of $441,000, and traceable fixed expenses of $171,000. During the same month, the West business segment had sales revenues of $450,000, variable expenses of $234,000, and traceable fixed expenses of $45,000. The common fixed expenses totaled $321,000 and were allocated as follows: $180,000 to the East business segment and $141,000 to the West business segment. A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is: A) $138,000 B) $675,000 C) $459,000 D) -$183,000 Feedback: *Given Solve in the following steps: $450,000 - $234,000 = $216,000 $900,000 - $441,000 = $459,000; $450,000 - $234,000 = $216,000 $459,000 - $171,000 = $288,000; $216,000 - $45,000 = $171,000 $288,000 + $171,000 = $459,000 $459,000 - $321,000 = $138,000 Points Earned: 0.0/1.0 Correct Answer(s): A 4. Beak Industries is a division of a major corporation. Last year the division had total sales of $10,600,000, net operating income of $1,070,600, and average operating assets of $4,000,000. The division's turnover is closest to: A) 2.09 B) 9.90 C) 2.65 D) 0.27 Feedback: Turnover = Sales Average operating assets = $10,600,000 Points Earned: 0.0/1.0 Correct Answer(s): C $4,000,000 = 2.65 5. Harstin Corporation has provided the following data: The minimum required rate of return for the past year was: A) 36% B) 8% C) 12% D) 40% Feedback: Residual income = Net operating income - Minimum required rate of return x Average operating assets $20,000 = $50,000 - (Minimum required rate of return x $250,000) Minimum required rate of return = 12% Points Earned: 0.0/1.0 Correct Answer(s): C 6. Licuado Juice Company has four product lines; Orange, Tomato, Carrot, and Grape. Shown below is last year's income statement segmented by product line: Net operating income last year for Licuado Company as a whole was $24,800. If the Carrot product line would have been dropped at the beginning of last year, how would this have changed the net operating income of Licuado Company as a whole? A) $2,400 increase B) $3,000 decrease C) $5,400 increase D) $12,000 decrease Feedback: The segment margin represents the amount the company would lose if the segment were to be dropped. Points Earned: 0.0/1.0 Correct Answer(s): B 7. The Holmes Division recorded operating data as follows for the past year: For the past year, the turnover was: A) 25 B) 10 C) 4 D) 2 Feedback: Turnover = Sales Average operating assets = $200,000 Points Earned: 0.0/1.0 Correct Answer(s): D $100,000 = 2 8. The Consumer Products Division of Garafalo Corporation had average operating assets of $300,000 and net operating income of $46,900 in March. The minimum required rate of return for performance evaluation purposes is 16%. What was the Consumer Products Division's residual income in March? A) $7,504 B) $1,100 C) -$7,504 D) -$1,100 Feedback: Residual income = Net operating income - Minimum required rate of return x Average operating assets = $46,900 - (16% x $300,000) = -$1,100 Points Earned: 0.0/1.0 Correct Answer(s): D 9. Deano Products is a division of a major corporation. The following data are for the last year of operations: The division's residual income is closest to: A) $591,480 B) $(128,520) C) $(1,698,120) D) $1,311,480 Feedback: Residual income = Net operating income - Minimum required rate of return x Average operating assets = $591,480 - (12% x $6,000,000) = $(128,520) Points Earned: 0.0/1.0 Correct Answer(s): B 10. Niesen Corporation has two major business segments-Consumer and Commercial. Data for the segment and for the company for August appear below: In addition, common fixed expenses totaled $282,000 and were allocated as follows: $127,000 to the Consumer business segment and $155,000 to the Commercial business segment. A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is: A) $110,000 B) $392,000 C) $546,000 D) -$172,000 Feedback: Points Earned: 0.0/1.0 Correct Answer(s): A 11. Campion Company has two divisions, A and B. The following data pertain to operations in May: If common fixed expenses were $10,000, total fixed expenses were: A) $10,000 B) $30,500 C) $40,500 D) $65,500 Feedback: *Given Solve in the following steps: 1) 100% - 70% = 30%; 100% - 60% = 40% 2) $50,000 x 30% = $15,000; $75,000 x 40% = $30,000 3) $15,000 - $7,000 = $8,000; $30,000 - $7,500 = $22,500 4) $30,500 + $10,000 = $40,500 Points Earned: 0.0/1.0 Correct Answer(s): C 12. Johnson Company operates two plants, Plant A and Plant B. Johnson Company reported for the year just ended a contribution margin of $50,000 for Plant A. Plant B had sales of $200,000 and a contribution margin ratio of 30%. Net income operating for the company was $20,000 and traceable fixed costs for the two plants totaled $50,000. Johnson Company's common fixed costs for last year were: A) $50,000 B) $70,000 C) $40,000 D) $90,000 Feedback: *Given Solve in the following steps: 1) $200,000 x 30% = $60,000 2) $50,000 + $60,000 = $110,000 3) $110,000 - $50,000 = $60,000 4) $60,000 - $20,000 = $40,000 Points Earned: 0.0/1.0 Correct Answer(s): C 13. The Holmes Division recorded operating data as follows for the past year: For the past year, the margin was: A) 12.50% B) 13.00% C) 14.75% D) 15.00% Feedback: Margin = Net operating income Points Earned: 0.0/1.0 Correct Answer(s): A Sales = $25,000 $200,000 = 12.50% 14. A company's average operating assets are $220,000 and its net operating income is $44,000. The company invested in a new project, increasing average assets to $250,000 and increasing its net operating income to $49,550. What is the project's residual income if the required rate of return is 20%? A) ($450) B) $450 C) $600 D) ($600) Feedback: Project average operating assets = $250,000 - $220,000 = $30,000 Project net operating income = $49,550 - $44,000 = $5,550 Residual income = Net operating income - Minimum required rate of return x Average operating assets = $5,550 - (20% x $30,000) = ($450) Points Earned: 0.0/1.0 Correct Answer(s): A 15. Deano Products is a division of a major corporation. The following data are for the last year of operations: The division's turnover is closest to: A) 32.26 B) 2.89 C) 0.10 D) 3.18 Feedback: Turnover = Sales Average operating assets = $19,080,000 Points Earned: 0.0/1.0 Correct Answer(s): D $6,000,000 = 3.18 16. A company had the following results last year: sales, $700,000; return on investment, 28%; and margin, 8%. The average operating assets last year were: A) $200,000 B) $2,450,000 C) $540,000 D) $2,500,000 Feedback: Margin = Net operating income 8.0% = Net operating income ROI = Net operating income Sales $700,000 Net operating income = $56,000 Average operating assets Average operating assets = $200,000 28% = $56,000 Average operating assets Points Earned: 0.0/1.0 Correct Answer(s): A 17. The Northern Division of the Smith Company had average operating assets totaling $150,000 last year. If the minimum required rate of return is 12%, and if last year's net operating income at Northern was $20,000, then the residual income for Northern last year was: A) $20,000 B) $l8,000 C) $5,000 D) $2,000 Feedback: Residual income = Net operating income - Minimum required rate of return x Average operating assets = $20,000 - (12% x $150,000) = $2,000 Points Earned: 0.0/1.0 Correct Answer(s): D 18. Ceder Products is a division of a major corporation. Last year the division had total sales of $21,520,000, net operating income of $538,000, and average operating assets of $8,000,000. The company's minimum required rate of return is 18%. The division's return on investment (ROI) is closest to: A) 0.2% B) 6.7% C) 1.8% D) 18.0% Feedback: ROI = Net operating income = 6.725% Points Earned: 0.0/1.0 Correct Answer(s): B Average operating assets = $538,000 $8,000,000 19. Division X of Charter Corporation makes and sells a single product which is used by manufacturers of fork lift trucks. Presently it sells 12,000 units per year to outside customers at $24 per unit. The annual capacity is 20,000 units and the variable cost to make each unit is $16. Division Y of Charter Corporation would like to buy 10,000 units a year from Division X to use in its products. There would be no cost savings from transferring the units within the company rather than selling them on the outside market. What should be the lowest acceptable transfer price from the perspective of Division X? A) $24.00 B) $21.40 C) $17.60 D) $16.00 Feedback: (Note: Due limitations in fonts and word processing software, > and < signs must be used in this solution rather than "greater than or equal to" and "less than or equal to" signs.) From the perspective of the selling division, profits would increase as a result of the transfer if and only if: Transfer price > Variable cost + Opportunity cost The opportunity cost is the contribution margin on the lost sales, divided by the number of units transferred: Opportunity cost = [($24 - $16) x 2,000*] 10,000 = $1.60 * 10,000 - (20,000 - 12,000) = 2,000 Therefore, Transfer price > $16 + $1.60 = $17.60. Points Earned: 0.0/1.0 Correct Answer(s): C 20. Division A makes a part with the following characteristics: Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $24 each. Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price. If Division A sells the parts to Division B at $24 per unit (Division B's outside price), the company as a whole will be: A) better off by $5,000 each period. B) worse off by $15,000 each period. C) worse off by $5,000 each period. D) There will be no change in the status of the company as a whole. Feedback: Since the company's selling the units currently for $25, if they sell internally for $24, they will be worse off by $1 per unit, or $5,000 in total ($1 x 5,000). Points Earned: 0.0/1.0 Correct Answer(s): C 1. Deano Products is a division of a major corporation. The following data are for the last year of operations: The division's margin is closest to: A) 9.9% B) 3.1% C) 34.5% D) 31.4% Feedback: Margin = Net operating income Points Earned: 0.0/1.0 Correct Answer(s): B Sales = $591,480 $19,080,000 = 3.1% 2. Delmar Corporation is considering the use of residual income as a measure of the performance of its divisions. What major disadvantage of this method should the company consider before deciding to institute it? A) this method does not take into account differences in the size of divisions. B) investments may be adopted that will decrease the overall return on investment. C) the minimum required rate of return may eliminate desirable investments. D) residual income does not measure how effectively the division manager controls costs. Points Earned: 0.0/1.0 Correct Answer(s): A 3. A segment of a business responsible for both revenues and expenses would be called: A) a cost center. B) an investment center. C) a profit center. D) residual income. Points Earned: 0.0/1.0 Correct Answer(s): C 4. Ahina Industries is a division of a major corporation. Data concerning the most recent year appears below: The division's return on investment (ROI) is closest to: A) 21.1% B) 2.5% C) 26.7% D) 7.0% Feedback: ROI = Net operating income = 26.7% (rounded) Points Earned: 0.0/1.0 Correct Answer(s): C Average operating assets = $533,920 $2,000,000 5. The Northern Division of the Smith Company had average operating assets totaling $150,000 last year. If the minimum required rate of return is 12%, and if last year's net operating income at Northern was $20,000, then the residual income for Northern last year was: A) $20,000 B) $l8,000 C) $5,000 D) $2,000 Feedback: Residual income = Net operating income - Minimum required rate of return x Average operating assets = $20,000 - (12% x $150,000) = $2,000 Points Earned: 0.0/1.0 Correct Answer(s): D 6. Kulp Corporation has two major business segments-East and West. In July, the East business segment had sales revenues of $900,000, variable expenses of $441,000, and traceable fixed expenses of $171,000. During the same month, the West business segment had sales revenues of $450,000, variable expenses of $234,000, and traceable fixed expenses of $45,000. The common fixed expenses totaled $321,000 and were allocated as follows: $180,000 to the East business segment and $141,000 to the West business segment. The contribution margin of the West business segment is: A) $108,000 B) $675,000 C) $288,000 D) $216,000 Feedback: *Given Solve in the following steps: $450,000 - $234,000 = $216,000 $900,000 - $441,000 = $459,000; $450,000 - $234,000 = $216,000 $459,000 - $171,000 = $288,000; $216,000 - $45,000 = $171,000 $288,000 + $171,000 = $459,000 $459,000 - $321,000 = $138,000 Points Earned: 0.0/1.0 Correct Answer(s): D 7. Ieso Company has two stores: J and K. During November, Ieso Company reported a net operating income of $30,000 and sales of $450,000. The contribution margin in Store J was $100,000, or 40% of sales. The segment margin in Store K was $30,000, or 15% of sales. Traceable fixed expenses are $60,000 in Store J, and $40,000 in Store K. The segment margin ratio in Store J was: A) 16% B) 24% C) 40% D) 60% Feedback: *Given Solve in the following steps: $60,000 + $40,000 = $100,000 $30,000 15% = $200,000 $450,000 - $200,000 = $250,000 $250,000 - $100,000 = $150,000 $30,000 + $40,000 = $70,000 $100,000 + $70,000 = $170,000 $450,000 - $170,000 = $280,000 $280,000 - $150,000 = $130,000 $170,000 - $100,000 = $70,000 $70,000 - $30,000 = $40,000 Total Fixed Expenses $40,000 + $100,000 = $140,000 Segment Margin Ratio - Store J $40,000 Points Earned: 0.0/1.0 Correct Answer(s): A $250,000 = 16% 8. Denner Company has two divisions, A and B, that reported the following results for October: If common fixed expenses were $31,000, total fixed expenses must have been: A) $31,000 B) $62,000 C) $93,000 D) $52,000 Feedback: *Given Solve in the following steps: 1) $2,000 + $23,000 = $25,000 2) $90,000 x 70% = $63,000; $150,000 x 60% = $90,000 3) $63,000 + $90,000 = $153,000 4) $90,000 + $150,000 = $240,000 5) $240,000 - $153,000 = $87,000 6) $87,000 - $25,000 = $62,000 7) $62,000 + $31,000 = $93,000 Points Earned: 0.0/1.0 Correct Answer(s): C 9. Ceder Products is a division of a major corporation. Last year the division had total sales of $21,520,000, net operating income of $538,000, and average operating assets of $8,000,000. The company's minimum required rate of return is 18%. The division's margin is closest to: A) 2.5% B) 39.7% C) 6.7% D) 37.2% Feedback: Margin = Net operating income Points Earned: 0.0/1.0 Correct Answer(s): A Sales = $538,000 $21,520,000 = 2.5% 10. Licuado Juice Company has four product lines; Orange, Tomato, Carrot, and Grape. Shown below is last year's income statement segmented by product line: Net operating income last year for Licuado Company as a whole was $24,800. Licuado is considering the implementation of a $5,000 advertising program specifically targeted at one of the four product lines. The program is expected to increase sales for any one of the product lines by $12,000. If the goal is to maximize the company's net operating income, for which product line should Licuado implement the advertising program? A) Orange B) Tomato C) Carrot D) Grape E) any one of the product lines; the effect on net operating income will be identical Feedback: Points Earned: 0.0/1.0 Correct Answer(s): B 11. A company's average operating assets are $220,000 and its net operating income is $44,000. The company invested in a new project, increasing average assets to $250,000 and increasing its net operating income to $49,550. What is the project's residual income if the required rate of return is 20%? A) ($450) B) $450 C) $600 D) ($600) Feedback: Project average operating assets = $250,000 - $220,000 = $30,000 Project net operating income = $49,550 - $44,000 = $5,550 Residual income = Net operating income - Minimum required rate of return x Average operating assets = $5,550 - (20% x $30,000) = ($450) Points Earned: 0.0/1.0 Correct Answer(s): A 12. Return on investment (ROI) is equal to the margin multiplied by: A) sales. B) turnover. C) average operating assets. D) residual income. Points Earned: 0.0/1.0 Correct Answer(s): B 13. Ceder Products is a division of a major corporation. Last year the division had total sales of $21,520,000, net operating income of $538,000, and average operating assets of $8,000,000. The company's minimum required rate of return is 18%. The division's return on investment (ROI) is closest to: A) 0.2% B) 6.7% C) 1.8% D) 18.0% Feedback: ROI = Net operating income = 6.725% Average operating assets = $538,000 $8,000,000 Points Earned: 0.0/1.0 Correct Answer(s): B 14. Data for September for Mossman Corporation and its two major business segments, North and South, appear below: In addition, common fixed expenses totaled $319,000 and were allocated as follows: $160,000 to the North business segment and $159,000 to the South business segment. The contribution margin of the South business segment is: A) $211,000 B) $673,000 C) $51,000 D) $392,000 Feedback: Points Earned: 0.0/1.0 Correct Answer(s): D 15. Beak Industries is a division of a major corporation. Last year the division had total sales of $10,600,000, net operating income of $1,070,600, and average operating assets of $4,000,000. The division's return on investment (ROI) is closest to: A) 26.8% B) 21.1% C) 2.7% D) 7.3% Feedback: ROI = Net operating income $4,000,000 = 26.8% (rounded) Points Earned: 0.0/1.0 Correct Answer(s): A Average operating assets = $1,070,600 16. The Holmes Division recorded operating data as follows for the past year: For the past year, the margin was: A) 12.50% B) 13.00% C) 14.75% D) 15.00% Feedback: Margin = Net operating income Points Earned: 0.0/1.0 Correct Answer(s): A Sales = $25,000 $200,000 = 12.50% 17. Campion Company has two divisions, A and B. The following data pertain to operations in May: If common fixed expenses were $10,000, total fixed expenses were: A) $10,000 B) $30,500 C) $40,500 D) $65,500 Feedback: *Given Solve in the following steps: 1) 100% - 70% = 30%; 100% - 60% = 40% 2) $50,000 x 30% = $15,000; $75,000 x 40% = $30,000 3) $15,000 - $7,000 = $8,000; $30,000 - $7,500 = $22,500 4) $30,500 + $10,000 = $40,500 Points Earned: 0.0/1.0 Correct Answer(s): C 18. Last year the House of Orange had sales of $826,650, net operating income of $81,000, and operating assets of $84,000 at the beginning of the year and $90,000 at the end of the year. What was the company's turnover rounded to the nearest tenth? A) 9.5 B) 10.2 C) 9.8 D) 9.2 Feedback: Turnover = Sales Average operating assets 2] = 9.5 (rounded) Turnover = $826,650 [($84,000 + $90,000) Points Earned: 0.0/1.0 Correct Answer(s): A 19. Part WY4 costs the Eastern Division of Tyble Corporation $26 to make-direct materials are $10, direct labor is $4, variable manufacturing overhead is $9, and fixed manufacturing overhead is $3. The Eastern Division can sell all of Part WY4 they can make to other companies for $30. The Western Division of Tyble Corporation can use Part WY4 in one of its products. What is the lowest transfer price at which the Eastern Division would be willing to sell Part WY4 to the Central Division? A) $30 B) $26 C) $23 D) $27 Feedback: (Note: Due limitations in fonts and word processing software, > and < signs must be used in this solution rather than "greater than or equal to" and "less than or equal to" signs.) From the perspective of the selling division, profits would increase as a result of the transfer if and only if: Transfer price > Variable cost + Opportunity cost The opportunity cost is the contribution margin on the lost sales, divided by the number of units transferred: Opportunity cost = $30 - $10 - $4 - $9 = $7 each Therefore, Transfer price > $23 + $7 = $30. Points Earned: 0.0/1.0 Correct Answer(s): A 20. The Buffalo Division of Alfred Products, Inc. has the capacity to manufacture 10,000 units of a certain part each year. This part sells for $12 per unit on the outside market. The Albany Division of Alfred Products, Inc. buys 3,000 units of this part each year from Buffalo, and thus far has paid the market price. Harlow Company (an outside supplier) has recently offered to sell Albany 3,000 units per year of the same part. Buffalo Division's costs relating to the product are: Suppose that the Albany Division buys the 3,000 units from the outside supplier at a price of $10 per unit. Also suppose that the Buffalo Division can sell only 6,000 units on the outside market. This decision would have no effect on total fixed costs. As a result of Albany shifting its purchases to the outside supplier, the yearly net operating income of Alfred Products, Inc. as a whole will: A) decrease by $9,000 B) increase by $9,000 C) decrease by $6,000 D) increase by $6,000 Feedback: The company would pay an additional $3 per unit by purchasing from the outside ($10 $7), or $9,000 in total ($3 x 3,000), causing the overall profit to decrease by $9,000. Points Earned: 0.0/1.0 Correct Answer(s): A 1. The West Division of Fitzmaurice Corporation had average operating assets of $450,000 and net operating income of $87,300 in November. The minimum required rate of return for performance evaluation purposes is 18%. What was the West Division's minimum required return in November? A) $87,300 B) $15,714 C) $96,714 D) $81,000 Feedback: Minimum required return = $450,000 x 18% = $81,000 Points Earned: 0.0/1.0 Correct Answer(s): D 2. Data for September for Mossman Corporation and its two major business segments, North and South, appear below: In addition, common fixed expenses totaled $319,000 and were allocated as follows: $160,000 to the North business segment and $159,000 to the South business segment. The contribution margin of the South business segment is: A) $211,000 B) $673,000 C) $51,000 D) $392,000 Feedback: Points Earned: 0.0/1.0 Correct Answer(s): D 3. Higado Confectionery Corporation has a number of store locations throughout North America. In income statements segmented by store, which of the following would be considered a common fixed cost? A) store manager salaries B) store building depreciation expense C) the cost of corporate advertising aired during the Super Bowl D) all of these Points Earned: 0.0/1.0 Correct Answer(s): C 4. A company that has a profit can increase its return on investment by: A) increasing sales revenue and operating expenses by the same dollar amount. B) increasing average operating assets and operating expenses by the same dollar amount. C) increasing sales revenue and operating expenses by the same percentage. D) decreasing average operating assets and sales by the same percentage. Points Earned: 0.0/1.0 Correct Answer(s): C 5. Deano Products is a division of a major corporation. The following data are for the last year of operations: The division's residual income is closest to: A) $591,480 B) $(128,520) C) $(1,698,120) D) $1,311,480 Feedback: Residual income = Net operating income - Minimum required rate of return x Average operating assets = $591,480 - (12% x $6,000,000) = $(128,520) Points Earned: 0.0/1.0 Correct Answer(s): B 6. The following information relates to the Cranberry Division of Innovative Bologna Corporation for last year: What was the Cranberry Division's residual income for last year? A) $26,400 B) $36,000 C) $41,400 D) $51,000 Feedback: Residual income = Net operating income - Minimum required rate of return x Average operating assets = $60,000 - (12% x $280,000) = $26,400 Points Earned: 0.0/1.0 Correct Answer(s): A 7. The Holmes Division recorded operating data as follows for the past year: For the past year, the minimum required rate of return was: A) 11% B) 12% C) 13% D) 14% Feedback: Residual income = Net operating income - (Minimum required rate of return x Average operating assets) $13,000 = $25,000 - (Minimum required rate of return x $100,000) Minimum required rate of return = 12% Points Earned: 0.0/1.0 Correct Answer(s): B 8. Denner Company has two divisions, A and B, that reported the following results for October: If common fixed expenses were $31,000, total fixed expenses must have been: A) $31,000 B) $62,000 C) $93,000 D) $52,000 Feedback: *Given Solve in the following steps: 1) $2,000 + $23,000 = $25,000 2) $90,000 x 70% = $63,000; $150,000 x 60% = $90,000 3) $63,000 + $90,000 = $153,000 4) $90,000 + $150,000 = $240,000 5) $240,000 - $153,000 = $87,000 6) $87,000 - $25,000 = $62,000 7) $62,000 + $31,000 = $93,000 Points Earned: 0.0/1.0 Correct Answer(s): C 9. The Consumer Products Division of Garafalo Corporation had average operating assets of $300,000 and net operating income of $46,900 in March. The minimum required rate of return for performance evaluation purposes is 16%. What was the Consumer Products Division's residual income in March? A) $7,504 B) $1,100 C) -$7,504 D) -$1,100 Feedback: Residual income = Net operating income - Minimum required rate of return x Average operating assets = $46,900 - (16% x $300,000) = -$1,100 Points Earned: 0.0/1.0 Correct Answer(s): D 10. The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow: Suppose the manager of Axle desires an annual residual income of $45,000. In order to achieve this, Axle should sell how many units per year? A) 14,500 B) 16,750 C) 18,250 D) 19,500 Feedback: Residual income = Net operating income - Minimum required rate of return x Average operating assets $45,000 = Net operating income - (12% x $750,000) Net operating income = $135,000 Unit contribution margin = $50 - $30 = $20 Number of units to be sold = (Fixed costs + Target net operating income) contribution margin = ($200,000 + $135,000) Points Earned: 0.0/1.0 Correct Answer(s): B $20 = 16,750 units Unit 11. Kulp Corporation has two major business segments-East and West. In July, the East business segment had sales revenues of $900,000, variable expenses of $441,000, and traceable fixed expenses of $171,000. During the same month, the West business segment had sales revenues of $450,000, variable expenses of $234,000, and traceable fixed expenses of $45,000. The common fixed expenses totaled $321,000 and were allocated as follows: $180,000 to the East business segment and $141,000 to the West business segment. A properly constructed segmented income statement in a contribution format would show that the net operating income of the company as a whole is: A) $138,000 B) $675,000 C) $459,000 D) -$183,000 Feedback: *Given Solve in the following steps: $450,000 - $234,000 = $216,000 $900,000 - $441,000 = $459,000; $450,000 - $234,000 = $216,000 $459,000 - $171,000 = $288,000; $216,000 - $45,000 = $171,000 $288,000 + $171,000 = $459,000 $459,000 - $321,000 = $138,000 Points Earned: 0.0/1.0 Correct Answer(s): A 12. Ieso Company has two stores: J and K. During November, Ieso Company reported a net operating income of $30,000 and sales of $450,000. The contribution margin in Store J was $100,000, or 40% of sales. The segment margin in Store K was $30,000, or 15% of sales. Traceable fixed expenses are $60,000 in Store J, and $40,000 in Store K. Variable expenses in Store K totaled: A) $70,000 B) $110,000 C) $200,000 D) $130,000 Feedback: *Given Solve in the following steps: $60,000 + $40,000 = $100,000 $30,000 15% = $200,000 $450,000 - $200,000 = $250,000 $250,000 - $100,000 = $150,000 $30,000 + $40,000 = $70,000 $100,000 + $70,000 = $170,000 $450,000 - $170,000 = $280,000 $280,000 - $150,000 = $130,000 $170,000 - $100,000 = $70,000 $70,000 - $30,000 = $40,000 Total Fixed Expenses $40,000 + $100,000 = $140,000 Segment Margin Ratio - Store J $40,000 Points Earned: 0.0/1.0 Correct Answer(s): D $250,000 = 16% 13. The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow: If Axle sells 16,000 units per year, the return on investment should be: A) 12% B) 15% C) 16% D) 18% Feedback: Unit contribution margin = $50 - $30 = $20 Total contribution margin = $20 x 16,000 = $320,000 Net operating income = $320,000 - $200,000 = $120,000 ROI = Net operating income 16% Points Earned: 0.0/1.0 Correct Answer(s): C Average operating assets = $120,000 $750,000 = 14. The Northern Division of the Smith Company had average operating assets totaling $150,000 last year. If the minimum required rate of return is 12%, and if last year's net operating income at Northern was $20,000, then the residual income for Northern last year was: A) $20,000 B) $l8,000 C) $5,000 D) $2,000 Feedback: Residual income = Net operating income - Minimum required rate of return x Average operating assets = $20,000 - (12% x $150,000) = $2,000 Points Earned: 0.0/1.0 Correct Answer(s): D 15. Niesen Corporation has two major business segments-Consumer and Commercial. Data for the segment and for the company for August appear below: In addition, common fixed expenses totaled $282,000 and were allocated as follows: $127,000 to the Consumer business segment and $155,000 to the Commercial business segment. The contribution margin of the Commercial business segment is: A) $146,000 B) $169,000 C) $546,000 D) $296,000 Feedback: Points Earned: 0.0/1.0 Correct Answer(s): A 16. Largo Company recorded for the past year sales of $750,000 and average operating assets of $375,000. What is the margin that Largo Company needed to earn in order to achieve an ROI of 15%? A) 2.00% B) 15.00% C) 9.99% D) 7.50% Feedback: Turnover = Sales Average operating assets Turnover = $750,000 $375,000 = 2.0 ROI = Margin x Turnover 15% = Margin x 2.0 Margin = 7.50% Points Earned: 0.0/1.0 Correct Answer(s): D 17. Data for September for Mossman Corporation and its two major business segments, North and South, appear below: In addition, common fixed expenses totaled $319,000 and were allocated as follows: $160,000 to the North business segment and $159,000 to the South business segment. A properly constructed segmented income statement in a contribution format would show that the segment margin of the North business segment is: A) $211,000 B) $51,000 C) $259,000 D) $121,000 Feedback: Points Earned: 0.0/1.0 Correct Answer(s): A 18. Ceder Products is a division of a major corporation. Last year the division had total sales of $21,520,000, net operating income of $538,000, and average operating assets of $8,000,000. The company's minimum required rate of return is 18%. The division's margin is closest to: A) 2.5% B) 39.7% C) 6.7% D) 37.2% Feedback: Margin = Net operating income Points Earned: 0.0/1.0 Correct Answer(s): A Sales = $538,000 $21,520,000 = 2.5% 19. Division A makes a part with the following characteristics: Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $24 each. Suppose that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into sales to outside customers. If Division B continues to purchase parts from an outside supplier rather than from Division A, the company as a whole will be: A) worse off by $30,000 each period. B) worse off by $10,000 each period. C) better off by $15,000 each period. D) worse off by $35,000 each period. Feedback: Purchasing from outside supplier costs $6 more than producing internally would ($24 $18). The total for all 5,000 parts is $6 x 5,000 = $30,000. Therefore, if the company continues to purchase from the outside supplier, it will be $30,000 worse off. Points Earned: 0.0/1.0 Correct Answer(s): A 20. The Buffalo Division of Alfred Products, Inc. has the capacity to manufacture 10,000 units of a certain part each year. This part sells for $12 per unit on the outside market. The Albany Division of Alfred Products, Inc. buys 3,000 units of this part each year from Buffalo, and thus far has paid the market price. Harlow Company (an outside supplier) has recently offered to sell Albany 3,000 units per year of the same part. Buffalo Division's costs relating to the product are: Suppose that the Albany Division buys the 3,000 units from the outside supplier at a price of $10 per unit. Also suppose that the Buffalo Division can sell only 6,000 units on the outside market. This decision would have no effect on total fixed costs. As a result of Albany shifting its purchases to the outside supplier, the yearly net operating income of Alfred Products, Inc. as a whole will: A) decrease by $9,000 B) increase by $9,000 C) decrease by $6,000 D) increase by $6,000 Feedback: The company would pay an additional $3 per unit by purchasing from the outside ($10 $7), or $9,000 in total ($3 x 3,000), causing the overall profit to decrease by $9,000. Points Earned: 0.0/1.0 Correct Answer(s): A ... View Full Document

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