(TCO D) Return on investment (ROI) is equal to the margin

multiplied by

Student Answer: sales. turnover. average operating assets. residual income. Instructor Explanation:Chapter 12

Points Received: 5 of 5

Comments:

2.

(A)The decision to

make or buy

a needed partThe desision to

keep or drop a pro

duct

line

(B)

(C)

(D)

Student Answer:Choice A

Choice B

Choice C

Choice D

Instructor Explanation: Chapter 13

Points Received: 5 of 5

Comments:

3.

(TCO D) Last year, the House of Orange had sales of $826,650, net operating income of $81,000, and operating assets of $84,000 at the beginning of the year and $90,000 at the end of the year. What was the company's turnover, rounded to the nearest tenth?

Student Answer: 9.5 10.2 9.8 9.2 Instructor Explanation:Turnover = Sales / Average operating assets

Turnover = $826,650 / [($84,000 + $90,000) / 2] = 9.5 (rounded)

1. Question : (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, FeedstocksS156,000

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.

Student Answer:

Fibers Feedstock Total Sales Revenue 870,000 820,000 1,690,000 Less:variable ex 426,000 344,000 770,000 Contribution mar 444,000 476,000 920,000 Fixed Cost: Less traceable 148,000 156,000 304,000 Less comm fixed 129,000 185,000 314,000 Total Fixed Cost 277,000 341,000 618,000 Net operat income 167,000 135,000 302,000

Instructor Explanation:

Points Received: 13 of 15

Comments: -2 we do not allocate common fixed expenses to segments

(TCO D) Wryski Corporation had net operating income of $15

0,000 and average operating assets of $500,000. The compa

ny requires a return on investment of 19%.

Required:

i

. Calculate the company's current return on investment an

d residual income.

ii. The company is investigating an in

vestment of $400,000 in a project that will generate annua

l net operating income of $78,000. What is the ROI of the

project? What is the residual income of the project? Shoul

d the company invest in this project?

Student Answer:1) Return on investment = Net operating income Average operating assets = $150,000 $500,000 = 30% Residual income = Net operating income - (Average operating assets x Minimum required rate of return) = $150,000 - ($500,000 x 0.19) = $55,000 ii. Return on investment = Net operating income Average operating assets = $78,000 $400,000 = 19.5% Residual income = Net operating income - (Average operating assets x Minimum required rate of return) = $78,000 - ($400,000 x 0.19) = $2,000 The company should invest in this project since its rate of return exceeds the minimum required rate of return. In other words, its residual income is positive. Instructor Explanation:i. Return on investment = Net operating income / Average operating assets = $150,000 / $500,000 = 30%

Residual income = Net operating income - (Average operating assets x Minimum required rate of return) = $150,000 - ($500,000 x 0.19) = $55,000

ii. Return on investment = Net operating income / Average operating assets = $78,000 / $400,000 = 19.5%

Residual income = Net operating income - (Average operating assets x Minimum required rate of return) = $78,000 - ($400,000 x 0.19) = $2,000

The company should invest in this project, because its rate of return exceeds the minimum required rate of return. In other words, its residual income is positive.

Points Received: 15 of 15

Comments: awesome

3.

Variable ExpensesTjelmeland Corporation is considering dropping product S85U. Data from the company's accounting system appear below.

Sales

Fixed Manufacturing Expenses

Fixed Selling and Administrative Expenses

All fixed expenses of the company are fully allocated to products in the co

mpany's accounting system. Further investigation has revealed that $55,000 of the fixed manufacturing expenses and $71,000 of th

e fixed selling and administrative expenses are avoidable if product S85U is discontinued.

Required:

i. According to the compa

ny's accounting system, what is the net operating income earned by product S85U? Show your work!

ii. What would be the

effect on the company's overall net operating income of dropping product S85U? Should the product be dropped? Show your wor

k!

Student Answer:

1) Sales 360000 less variable 158000 Contribution 202000 less fixed manu (119000) less fixed selling (94000) Net loss (11000) 2)Net loss (11000) Add: fixed manu 55000 Add: Fixed selling 71000 Net income 115000

Instructor Explanation:

i. According to the company's accounting system, the product's net operating loss is $11,000.

ii. Net operating income would decline by $76,000 if product S85U were dropped. Therefore, the product should not be dropped.

Points Received: 9 of 15

Comments: -6 you never stated your decision and please see the correct analysis above

4.

Direct LaborCompany 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

Variable Manufacturing Overhead

Fixed Manufacturing Overhead

Unit Product Cost

An outside supplier ha

s 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 us

ed to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on thi

s 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 ev

en if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's re

maining 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. Wha

t 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?

Student Answer:

1) If agreed to purchase products from outside , the relevent cost would be 6.20 of fixed manfcturing cost . b) What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it make Buy Advantage/disadvatange Unit cost Total Unit cost Total cost Unit cost Total cost Direct materials 15.7 471000 15.7 471000 Direct labor 17.5 525000 17.5 525000 Variable manufacturing overhead 4.5 135000 4.5 135000 Fixed manufacturing overhead 14.6 438000 6.2 186000 8.4 252000 Purchase price 51.9 1557000 -51.9 -1557000 Unit product cost -5.8 -174000 C) 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? The maximum amount can be paid for the outsider's product The total product cost = $52.30 less: continue fixed manufacturing cost = $6.20 =$46.10

Instructor Explanation:

Points Received: 10 of 15

Comments: -5 please review the solution above

5.

(TCO D) Biello Co. manufactures and sells medals for winn

Direct Materials

ers of athletic and other events. Its manufacturing plant has the c

apacity to produce 15,000 medals each month; current monthly produc

tion is 14,250 medals. The company normally charges $115 per medal.

Cost data for the current level of production are shown below.

Var

iable CostsDirect LaborSelling and Administrative Fixed CostsManufacturingSelling and Administrative

The company has just received a special one-time order for 600 medals at $102 each. For thi

s 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?

Student Answer:

On Accepting the Order for additional 600 medals : Selling Price 600 * 102 $61200 (-) Direct Materials 600 * 68 $40800 (969000/14250 = 68) (-) Direct Labour 600 * 19 $11400 (270750/14250 = 19) Contribution $9000 Decision : The Biello Co. must ACCEPT the order for manufacturing 600 medals as this CONTRIBUTION is an additional gain over the current production of 14250 medals. The Company has the idle capacity of (15000 – 14250= 750) medals out of which if 600 medals produced can utilize the fixed cost spread over the range of 15000 medals with no extra variable Selling and Admn. Expense.

Instructor Explanation:

Only the direct materials and direct labor costs are relevant in this decision. To make the decision, we must compute the average direct materials and direct labor cost per unit.

Because price on the special order is $102 per medal and the relevant cost is only $87, the company would earn a profit of $15 per medal. Therefore, the special order should be accepted.

Points Received: 15 of 15

Comments: awesome