Final Fa2009 Solution

# 6a002 fall 2009 final exam page 8 use the following

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Unformatted text preview: puts into outputs (an unfavorable labor efficiency variance).] 6A:002 Fall 2009 – Final Exam Page 8 Use the following information about Toro to answer questions 17 through 19. Toro segments its business according to customer type: Residential and Professional. Selected financial results for the past year (in thousands) follow. Residential Professional Accounts Receivable \$55,000 \$125,000 Gross Margin \$300,000 \$500,000 Operating Income \$65,000 \$170,000 Total Assets \$190,000 \$400,000 Current Liabilities \$68,000 \$150,000 Toro management has specified a target rate of return of 25% for each division. Each division’s assets consist entirely of cash, accounts receivable, inventory, building and equipment. 17. Compute the Residential Division’s ROI. \$65,000 / \$190,000 = 34.21% 18. Compute the Residential Division’s Residual Income. \$65,000 – 25% * \$190,000 = \$17,500 19. Assume the Residential Division’s return on sales is 12%. What asset turnover ratio does it need to achieve in order to generate a 40% ROI? If you cannot answer this question without additional information, state the additional information that you need. ROI = ROS * ATO 40% = 12% * x x=3.3333 6A:002 Fall 2009 – Final Exam Page 9 20. Lance Berkman is the manager of Bill and Jo’s Restaurant. The restaurant’s year end is December 31. At the end of December, Lance decided to purchase \$30,000 in extra inventory. He plans to pay for this inventory in January. For each of the financial ratios below, state the impact of this decision on the year end ratio. Use the following words to indicate the effect: increase, decrease, no effect. Assume that Bill and Jo’s acid test ratio is 1.5. Current Ratio decrease Days Sales in Average Receivables no effect Inventory Turnover decrease Times Interest Earned Ratio no effect 21. Capital Record Store presented the following balance sheet for the fiscal year ending June 30, 2009. Current Assets ...........................................................\$486,0...
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## This note was uploaded on 09/29/2011 for the course 06A 002 taught by Professor Stuff during the Spring '11 term at University of Iowa.

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