Question 1.1. (TCO D) Which of the following performance measures will decrease if there is an increase in the accounts receivable?
Return on Investment Residual Income
(A)
Yes
Yes
(B)
No
Yes
(C)
Yes
No
(D)
No
No
Choice A
Choice B
Choice C
Choice D
Question 2.2. (TCO D) For which of the following decisions are opportunity costs relevant?
The decision to make or buy a needed part
The desision to keep or drop a product line
(A)
Yes
Yes
(B)
Yes
No
(C)
No
Yes
(D)
No
No
Choice A
Choice B
Choice C
Choice D
Question 3.3. (TCO D) For which of the following decisions are sunk costs relevant?
The decision to keep an old machine or buy a new one
The decision to sell a product at the split-off point or after further processing
The decision to accept or reject a special order offer
All of the above
None of the above
1.
(TCO D) Data for December concerning Dinnocenzo Corporation's two major business segments-Fibers and Feedstocks-appear below:
ales revenues, Fibers
$870,000
Sales revenues, Feedstocks
$820,000
Variable expenses, Fibers
$426,000
Variable expenses, Feedstocks
$344,000
Traceable fixed expenses, Fibers
$148,000
Traceable fixed expenses, Feedstocks
S156,000
Common fixed expenses totaled $314,000 and were allocated as follows: $129,000 to the Fibers business segment and $185,000 to the Feedstocks business segment.
Required:
Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts.
Question 2. 2. (TCO D) Ferro Wares is a division of a major corporation. The following data are for the latest year of operations.
Sales $33,040,000
Net Operating Income $1,453,760
Average Operating Assets $8,000,000
The company's minimum required rate of return 18%
Required:
i. What is the division's ROI?
ii. What is the division's residual income?
Question 3. 3. (TCO D) The management of Drummer Corporation is considering dropping product D84L. Data from the company's accounting system appear below.
Sales $800,000
Variable Expenses $440,000
Fixed Manufacturing Expenses $248,000
Fixed Selling and Administrative Expenses $184,000
All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $201,000 of the fixed manufacturing expenses and $156,000 of the fixed selling and administrative expenses are avoidable if product D84L is discontinued.
Required:
What would be the effect on the company's overall net operating income if product D84L were dropped? Should the product be dropped? Show your work! (Points : 15)
Question 4. 4. (TCO D) Fouch Company makes 30,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows.
Direct Materials $15.70
Direct Labor $17.50
Variable Manufacturing Overhead $4.50
Fixed Manufacturing Overhead $14.60
Unit Product Cost $52.30
An outside supplier has offered to sell the company all of these parts it needs for $51.90 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $219,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $6.20 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.
Required:
i. How much of the unit product cost of $52.30 is relevant in the decision of whether to make or buy the part?
ii. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?
iii. What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 30,000 units required each year? (Points : 15)
Question 5. 5. (TCO D) Biello Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 15,000 medals each month; current monthly production is 14,250 medals. The company normally charges $115 per medal. Cost data for the current level of production are shown below.
Variable Costs
Direct Materials $969,000
Direct Labor $270,750
Selling and Administrative $270,075
Fixed Costs
Manufacturing $370,550
Selling and Administrative $89,775
The company has just received a special one-time order for 600 medals at $102 each. For this particular order, no variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs.