SP07E3Sol - Managerial Accounting Name: Acct 2301 , Spring...

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Managerial Accounting Acct 2301 Spring 2007 Exam 3 - Solutions Name: There are 25 questions on this exam. Make sure you fill in an answer for each question on your scantron. Good luck. NOTE: Rounding error within $5 is acceptable on all time-value-of-money problems. 1. The Handy’s Hardware Company has four separate divisions. Annual 2006 information for each division is given below. Lumber Hardware Plumbing Outdoors Revenue $360,000 $420,000 $250,000 $305,000 Operating Expenses $300,000 $380,000 $210,000 $285,000 Operating Assets $500,000 $235,294 $307,692 $125,000 OI (Rev – Exp) $60,000 $40,000 $40,000 $20,000 ROI = OI / OA 12% 17% 13% 16% Which division had the best performance based on return on investment for 2006? a. Lumber Division b. Hardware Division – ROI = 17% c. Plumbing Division d. Outdoors Division e. None of the above 2. The Panther Holding Company has several divisions. One of the divisions – Lumber Manufacturing Division is lagging behind in performance. The division manager is trying to increase the division’s return. Doing which of the following things will increase the division’s ROI? a. Increase sales – If sales increase OI also increases b. Reduce expenses – If expenses decrease OI also increases c. Reduce operating assets d. All of the above e. None of the above 3. Danny started his own delivery service. Danny purchased a new van for $32,000. During his first year of operations he had sales of $64,000. He determined that his margin was 5%. What was Danny’s return on his investment for the first year? a. 2.5% ROI = OI / OA b. 5.0% Margin = OI / Sales 5% = OI / 64,000 c. 7.5% OI = $3,200 d. 12.0% ROI = $3,200 / $32,000 = 10% e. None of the above – 10% 4. The O’Donnell Company has several divisions. Paul is the manager of Division 1. Division 1 has current operating assets of $10,000,000 with a return of 16%. The company’s target is 12%. Because Paul has done such a good job managing
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Division 1, Paul’s boss has asked him to accept a new investment project of $3,000,000 that has a return of 14%. Should Paul accept the new investment? RI for New Investment: RI = OI – (OA * Desired ROI) OI = 14% * $3,000,000 = $420,000 $420,000 – ($3,000,000 * 12%) = $60,000 a. Yes, because residual income will increase by $60,000 b. No, because residual income will increase by $60,000 c. Yes, because residual income will increase by $40,000 d. No, because residual income will decrease by $40,000 e. None of the above 5. Bilbo Company has a current margin of 6% with operating income of $6,000. What is the company’s turnover, if the company has $50,000 in operating assets? a. 0.5 Margin = OI / Sales b. 1.0 6% = $6,000 / Sales c. 2.0 Sales = $100,000 d. 3.0 Turnover = Sales / OA e. None of the above $100,000 / $50,000 = 2 6. Baggins Corporation would like to have a return of 12% on all of its investments. The Gold Division has current assets of $1,500,000.
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This homework help was uploaded on 04/22/2008 for the course ACCT 2302 taught by Professor All during the Spring '08 term at Texas Tech.

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SP07E3Sol - Managerial Accounting Name: Acct 2301 , Spring...

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