# ACCT 505 Week 6 Quiz 2

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ACCT505 Week6 Quiz2

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
(Points : 5)

Choice A         Choice B          Choice C          Choice D

2. (TCO D) Given the following data, what would ROI be? (Points : 5)
Sales                                        \$50,000
Net operating income                           \$5,000
Contribution margin                 \$20,000
Average operating assets          \$25,000
Stockholder’s equity                \$15,000

10%     20%     16.7%              80%

3. (TCO D) Given the following data: What is the return on investment (ROI)?
Sales                                        \$150.000
Net operating income               \$15,000
Contribution margin                 \$30,000
Average operating assets          \$50,000
Stockholder’s equity                \$100,000
(Points : 5)

10%     15%     60%     30%

Page 2
Question 1.
(TCO D) Data for December concerning Dinnocenzo Corporation’s two major business segments-Fibers and Feedstocks-appear below:

Sales 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.  (Points : 15)

Question 2. (TCO D) Eber Wares is a division of a major corporation. The following data are for the latest year of operations.
Sales                                                                            \$30,000,000
Net Operating income                                                  \$1,170,000
Average operating assets                                              \$8,000,000
The company’s minimum required rate of return                     18%
&nbs p;

Required:
i. What is the division’s margin?
ii. What is the division’s turnover?
iii. What is the division’s ROI?
iv. What is the division’s residual income? (Points : 15)

Question 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) 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.
Per Unit
Direct Materials                                   \$2.80
Direct Labor                                        \$6.30
Supervisor’s Salary                              \$2.60
Depreciation of Special Equipment     \$6.80

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.

Required:
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. (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
Fixed Costs
Manufacturing                         \$370,550

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.

Required:
Should the company accept this special order? Why? (Points : 15)

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