ACCT 505

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 amount.      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 partThe desision to keep or drop a product line(A) Yes Yes(B) Yes No(C) No Yes(D) No No(Points : 5)       Choice A      Choice B      Choice C      Choice D 3. (TCO D) Given the following data: What is the return on investment (ROI)? Sales$150.000Net operating income$15,000Contribution margin$30,000Average operating assets$50,000Stockholder’s equity$100,000(Points : 5)       10%      15%      60%      30%(TCO D) Data for December concerning Dinnocenzo Corporation’s two major business segments-Fibers and Feedstocks-appear below: Sales revenues, Fibers$870,000Sales revenues, Feedstocks$820,000Variable expenses, Fibers$426,000Variable expenses, Feedstocks$344,000Traceable fixed expenses, Fibers $148,000Traceable fixed expenses, FeedstocksS156,000Common 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)              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%. Required:i. Calculate the company’s current return on investment and residual income.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.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)       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$15.70Direct Labor$17.50Variable Manufacturing Overhead$4.50Fixed Manufacturing Overhead$14.60Unit Product Cost$52.30An 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)       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 CostsDirect Materials$948,600 Direct Labor$290,700Selling and Administrative $41,300 Fixed CostsManufacturing$579,870Selling and Administrative $134,640The 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 costs.Required:Should the company accept this special order? Why? (Points : 15)

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