ACCT 525 Ch 12 thru 16 textbook Solutions

# ACCT 525 Ch 12 thru 16 textbook Solutions - Chapter 12...

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Unformatted text preview: Chapter 12 Solutions Exercise 12-1 (10 minutes) Total CD DVD Sales*................................................... \$750,000 \$300,000 \$450,000 Variable expenses**.............................. 435,000 120,000 315,000 Contribution margin.............................. 315,000 180,000 135,000 Traceable fixed expenses..................... 183,000 138,000 45,000 Product line segment margin................ 132,000 42,000 \$ 90,000 \$ Common fixed expenses not traceable to products......................................... 105,000 Net operating income............................ 27,000 \$ * ** CD: 37,500 packs × \$8.00 per pack = \$300,000; DVD: 18,000 packs × \$25.00 per pack= \$450,000. CD: 37,500 packs × \$3.20 per pack = \$120,000; DVD: 18,000 packs × \$17.50 per pack= \$315,000. Exercise 12-2 (10 minutes) 1. 2. 3. 1 Exercise 12-3 (10 minutes) Average operating assets (a).................. £2,200,000 Net operating income.............................. £400,000 Minimum required return: 16% × (a)....... 352,000 Residual income...................................... £ 48,000 Exercise 12-8 (30 minutes) 1. Computation of ROI. Division A: Division B: Division C: 2. Division A Division B Division C Average operating assets.... \$1,500,000 \$5,000,000 \$2,000,000 Required rate of return......... × 15% × 18% × 12% Required operating income.. \$ 225,000 \$ 900,000 \$ 240,000 Actual operating income...... \$ 300,000 \$ 900,000 \$ 180,000 Required operating income (above).............................. 225,000 900,000 240,000 Residual income.................. \$ 75,000 \$ \$ (60,000) Exercise 12-8 (continued) 3. a. and b. Division A Division B Division C Return on investment (ROI)... 20% 18% 9% 2 Therefore, if the division is presented with an investment opportunity yielding 17%, it probably would................................... Reject Reject Accept Minimum required return for computing residual income. 15% 18% 12% Therefore, if the division is presented with an investment opportunity yielding 17%, it probably would................................... Accept Reject Accept If performance is being measured by ROI, both Division A and Division B probably would reject the 17% investment opportunity. The reason is that these companies are presently earning a return greater than 17%; thus, the new investment would reduce the overall rate of return and place the divisional managers in a less...
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## This note was uploaded on 04/21/2009 for the course ACCT 525 taught by Professor Heslop during the Spring '08 term at Texas A&M University–Commerce.

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ACCT 525 Ch 12 thru 16 textbook Solutions - Chapter 12...

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