1.

(TCO E) Setting up equipment is a (n) (Points : 5)

unit-level activity.
product-level activity.
batch-level activity.
organization-sustaining activity.

1398465886

MultipleChoice

Question 2. 2. (TCO G) Given the following data, what would ROI be?

Sales

$60,000

Net operating income

$12,000

Contribution margin

$20,000

Average operating assets $50,000

Stockholder's equity

$15,000

(Points : 5)

10.0%
20.0%
16.5%
24.0%

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MultipleChoice

Question 3. 3. (TCO H) For which of the following decisions are opportunity costs relevant? (Points : 5)

The decision to make or buy a new part.

The decision to accept or reject a special order price.
The decision to keep or drop a product line.
Opportunity costs are relevant for each of the decisions above.

1398465888

MultipleChoice

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Question 1. 1. (TCO H) Ginger Corporation has two major business segmentsHerbs and Spices. Data

concerning those segments for June appear below.

Sales revenues, Herbs $475,000
Variable expenses, Herbs $262,500
Traceable fixed expenses, Herbs $78,000
Sales revenues, Spices $450,000
Variable expenses, Spices $225,000
Traceable fixed expenses, Spices $65,000
Common fixed expenses totaled $195,000 and were allocated as follows: $85,000 to the Herbs business
segment and $110,000 to the Spices business segment.
Required:
Prepare a segmented income statement in the contribution format for the company. Omit percentages;
show only dollar amounts. (Points : 15)

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Short

Question 2. 2. (TCO G) Esh Wares is a division of a major corporation. The following data are for the

latest year of operations.

Sales Net

$50,000,000

Operating Income

$3,200,00

Average Operating Assets

$10,000,000

The companys minimum required rate of return 15%

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)

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Short

Question 3. 3. (TCO H) Tilland Corporation is considering dropping product P33U. Data from the

company's accounting system appear below.

Sales

$390,000

Variable Expenses

$172,000

Fixed Manufacturing
Expenses

$218,000

Fixed Selling and

Administrative Expenses

$94,000

All fixed expenses of the company are fully allocated to products in the company's accounting system.
Further investigation has revealed that $35,000 of the fixed manufacturing expenses and $20,000 of the
fixed selling and administrative expenses are avoidable if product P33U is discontinued.
Required:
i. According to the company's accounting system, what is the net operating income earned by product
P33U? Show your work!
ii. What would be the effect on the company's overall net operating income of dropping product P33U?
Should the product be dropped? Show your work! (Points : 15)

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Short

Question 4. 4. (TCO H) Finch Company makes 40,000 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

$16.00

Direct Labor

$18.50

Variable
Manufacturing
Overhead

$5.50

Fixed
Manufacturing
Overhead

$12.75

Unit Product Cost

$52.75

An outside supplier has offered to sell the company all of these parts it needs for $56.00 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 $120,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would be
avoided. However, $5.75 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 $52.75 is relevant in the decision of whether to make or buy the
part?
ii. Should Finch Company make or buy the part? (Provide numerical support for your answer) (Points :
15)

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Short

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Question 5. 5. (TCO H) Biello Company manufactures and sells medals for winners of athletic and other

events. Its manufacturing plant has the capacity to produce 20,000 medals each month; current monthly
production is 19,000 medals. The company normally charges $60 per medal. Cost data for the current
level of production are shown below.

Variable Costs

Direct Materials

Direct Labor

Selling and
Administrative

$484,500

$142,500

$135,038

Fixed Costs

$185,275

Manufacturing

Selling and
Administrative

$44,888

The company has just received a special one-time order for 700 medals at $40 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? Provide numerical support for your decision. (Points : 15)

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Short

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