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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
$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
Days Sales in Average Receivables no effect
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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