Chapter 12 Practice Problems Answered

Chapter 12 Practice Problems Answered - 1. Data for...

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1. Data for September for Mossman Corporation and its two major business segments, North and South, appear below: Sales revenues, North $541,000 Variable expenses, North $261,000 Traceable fixed expenses, North $74,000 Sales revenues, South $860,000 Variable expenses, South $403,000 Traceable fixed expenses, South $77,000 In addition, common fixed expenses totaled $316,000 and were allocated as follows: $164,000 to the North business segment and $152,000 to the South business segment. The contribution margin of the South business segment is: Answer: $457,000 2. Wryski Corporation had net operating income of $159,000 and average operating assets of $410,000. The company requires a return on investment of 18.80%. Required: a . Calculate the company’s current return on investment and residual income. (Round Return on investmen t % Residual income $ The company is investigating an investment of $450,000 in project that will generate annual net operating income of $85,950. b1 . What is the return on investment of the project? (Round your answer to 2 decimal places. Omit the "%" sign in your response.) Return on investment % b2 . What is the residual income of the project? (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) Residual income $ b3 . Should the company invest in this project? Yes.
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Explanation: a. Return on investment = Net operating income ÷ Average operating assets = $159,000 ÷ $410,000 = 38.78% Residual income = Net operating income – (Average operating assets × Minimum required rate of return) = $159,000 – ($410,000 × 0.188) = $81,920 b. Return on investment = Net operating income ÷ Average operating assets = $85,950 ÷ $450,000 = 19.10% Residual income = Net operating income – (Average operating assets × Minimum required rate of return) = $85,950 – ($450,000 × 0.188) = $1,350 The company should invest in this project since its rate of return exceeds the minimum required rate of return. In other words, its residual income is positive. 3. Eber Wares is a division of a major corporation. The following data are for the latest year of operations: Sales $ 30,600,000 Net operating income $ 1,179,000 Average operating assets $ 8,970,000 The company’s minimum required rate of return 18.0 %
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Required: a. What is the division’s margin? (Round your answer to 2 decimal places. Omit the "%" sign in your response.) Profit margin % b. What is the division’s turnover? (Round your answer to 2 decimal places.) Asset turnover ratio c. What is the division’s return on investment (ROI)? (Round your answer to 2 decimal places. Omit the "%" sign in your response.) Return on investment % d. What is the division’s residual income?
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Chapter 12 Practice Problems Answered - 1. Data for...

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