Question

1. The following data are for the Akron Division of Consolidated Rubber, Inc.:

Sales	$	750,000
Net operating income	$	45,000
Average operating assets	$	250,000
Stockholders' equity	$	75,000
Residual income	$	15,000

For the past year, the turnover used in ROI calculations was:

Multiple Choice

• 1.4

• 3.3

• 10.0

• 3.0

2. Milford Corporation has in stock 16,100 kilograms of material R that it bought five years ago for $5.75 per kilogram. This raw material was purchased to use in a product line that has been discontinued. Material R can be sold as is for scrap for $3.91 per kilogram. An alternative would be to use material R in one of the company's current products, S88Y, which currently requires 2 kilograms of a raw material that is available for $7.60 per kilogram. Material R can be modified at a cost of $0.77 per kilogram so that it can be used as a substitute for this material in the production of product S88Y. However, after modification, 4 kilograms of material R is required for every unit of product S88Y that is produced. Milford Corporation has now received a request from a company that could use material R in its production process. Assuming that Milford Corporation could use all of its stock of material R to make product S88Y or the company could sell all of its stock of the material at the current scrap price of $3.91 per kilogram, what is the minimum acceptable selling price of material R to the company that could use material R in its own production process? (Round your intermediate calculations to 2 decimal places.)

Multiple Choice

• $0.88 per kg

• $3.03 per kg

• $4.57 per kg

• $3.91 per kg

Answer 1

1

Answer

The Correct Option is D : 3

Explanation

Sales = $750,000

Average operating assets = $250,000

Turnover = Sales / Average operating assets

$750,000 / $250,000= 3

Turnover = 3

2

	Amount ($)
Cost of alternative material to produce a unit of S88Y(2 kgs * $7.6 per kg)	15.2
Cost of using material L to produce a unit ofS88Y: (4 kgs * $0.77 per kg)	3.08
Savings from using material L to produce a unit of S88Y (a)	12.12
Kilograms of material L per unit of S88Y (b)	4 kgs
Value per kg of material L when used to produce S88Y (a) / (b)	$3.03 per kg
Option B is Correct