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
(Points : 5)
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
(Points : 5)
Question 3. 3. (TCO D) For which of the following decisions are sunk costs relevant? (Points : 5)
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) Seebach Corporation has two major business segments Apparel and Accessories. Data concerning those segments for June appear below.
Sales revenues, Apparel
Variable expenses, Apparel
Traceable fixed expenses, Apparel
Sales revenues, Accessories
Variable expenses, Accessories
Traceable fixed expenses, Accessories
Common fixed expenses totaled $292,000 and were allocated as follows: $155,000 to the Apparel business segment and $137,000 to the Accessories business segment.
Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts. (Points : 15)
Question 2. 2. (TCO D) Ferro Wares is a division of a major corporation. The following data are for the latest year of operations.
Net Operating Income $1,453,760
Average Operating Assets $8,000,000
The company’s minimum required rate of return 18%
i. What is the division’s ROI?
ii. What is the division’s residual income? (Points : 15)
Question 3. 3. (TCOD) The management of Thews Corporation is considering dropping product E28I. Data from the company’s accounting system appear below.
Variable Expenses $202,000
Fixed Manufacturing Expenses $158,000
Fixed Selling and Administrative Expenses $130,000
All fixed expenses of the company are fully allocated to products in the company’s accounting system. Further investigation has revealed that $86,000 of the fixed manufacturing expenses and $67,000 of the fixed selling and administrative expenses are avoidable if product E28I is discontinued.
i. What is the net operating income earned by product E28I according to the company’s accounting system? Show your work!
ii. What would be the effect on the company’s overall net operating income of dropping product E28I? Should the product be dropped? Show your work! (Points : 15)
Question 4. 4. (TCO D) Rosiek Corporation uses part A55 in one of its products. The company’s accounting department reports the following costs of producing the 4,000 units of the part that are needed every year.
Direct Materials $2.80
Direct Labor $6.30
Variable Overhead $8.50
Supervisor’s Salary $2.60
Depreciation of Special Equipment $6.80
Allocated General Overhead $6.10
An outside supplier has offered to make the part and sell it to the company for $32.30 each. If this offer is accepted, the supervisor’s salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier’s offer were accepted, only $4,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part A55 could be used to make more of one of the company’s other products, generating an additional segment margin of $26,000 per year for that product.
i. Prepare a report that shows the effect on the company’s total net operating income of buying part A55 from the supplier rather than continuing to make it inside the company.
ii. Which alternative should the company choose? (Points : 15)
Question 5. 5. (TCO D) A customer has asked Clougherty Corporation to supply 4,000 units of product M97, with some modifications, for $40.10 each. The normal selling price of this product is $48.00 each. The normal unit product cost of product M97 is computed as follows.
Direct Materials $18.50
Direct Labor $1.20
Variable manufacturing overhead $8.40
Fixed manufacturing overhead $3.90
Unit product cost $32.00
Direct labor is a variable cost. The special order would have no effect on the company’s total fixed manufacturing