ACCT 505

timer Asked: Jun 17th, 2013

Question description

1. (TCO D) A company that has a
profit can increase its return on investment by (Points : 5)

increasing sales revenue and
operating expenses by the same dollar amount.
increasing average operating
assets and operating expenses by the same dollar
increasing sales revenue and
operating expenses by the same percentage.
decreasing average operating
assets and sales by the same percentage.

2. (TCO D) For which of the following
decisions are opportunity costs relevant?

The decision to make or buy a needed

The desision to keep or drop a product













(Points : 5)
Choice D

3. (TCO D) Given the following data: What is
the return on investment (ROI)?

Net operating income$15,000
Contribution margin$30,000
Average operating assets$50,000
Stockholder's equity$100,000
(Points :

(TCO D) Data for December concerning Dinnocenzo Corporation's
two major business segments-Fibers and Feedstocks-appear below:

Sales revenues, Fibers


Sales revenues, Feedstocks


Variable expenses, Fibers


Variable expenses, Feedstocks


Traceable fixed expenses, Fibers


Traceable fixed expenses, Feedstocks


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.


Prepare a segmented income statement
in the contribution format for the company. Omit percentages; show only dollar

(Points : 15)      

2. (TCO D) Wryski Corporation had net
operating income of $150,000 and average operating assets of $500,000. The
company requires a return on investment of 19%.


Calculate the company's current return on investment and residual

ii. The company is investigating an investment of $400,000 in a
project that will generate annual net operating income of $78,000. What is the
ROI of the project? What is the residual income of the project? Should the
company invest in this project? (Points : 15)


3. (TCO D) The management of Drummer
Corporation is considering dropping product D84L. Data from the company's
accounting system appear below.

Variable Expenses$440,000
Fixed Manufacturing Expenses$248,000
Fixed Selling and Administrative Expenses$184,000

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


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)


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

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


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)


5. (TCO D) Manning Co. manufactures
and sells trophies for winners of athletic and other events. Its manufacturing
plant has the capacity to produce 18,000 trophies each month; current monthly
production is 15,300 trophies. The company normally charges $141 per trophy.
Cost data for the current level of production are shown below.

Variable Costs
Direct Materials$948,600
Direct Labor$290,700
Selling and Administrative $41,300
Fixed Costs
Selling and Administrative $134,640

company has just received a special one-time order for 900 trophies at $73 each.
For this particular order, no variable selling and administrative costs would be
incurred. This order would also have no effect on fixed


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


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