Question

2.

Given the following data:

Return on investment	36%
Turnover	2.7
Margin	10%
Sales	$270,000
Average operating assets	$75,000
Minimum required rate of return	19%

The residual income would be:

$12,750

$0

$19,500

$24,300

4.

The West Division of Frede Corporation had average operating assets of $658,000 and net operating income of $147,000 in December. The minimum required rate of return for performance evaluation purposes is 23%.

What was the West Division's minimum required return in December?

$147,000

$151,340

$33,810

$185,150

5.

Tawstir Corporation has 400 obsolete personal computers that are carried in inventory at a total cost of $576,000. If these computers are upgraded at a total cost of $170,000, they can be sold for a total of $230,000. As an alternative, the computers can be sold in their present condition for $40,000.

What is the net advantage or disadvantage to the company from upgrading the computers rather than selling them in their present condition?

$20,000 advantage

$630,000 disadvantage

$190,000 advantage

$60,000 advantage

6.

The management of Kabanuck Corporation is considering dropping product V41B. Data from the company's accounting system appear below:

Sales	$923,000
Variable expenses	$402,000
Fixed manufacturing expenses	$337,000
Fixed selling and administrative expenses	$244,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $204,000 of the fixed manufacturing expenses and $115,000 of the fixed selling and administrative expenses are avoidable if product V41B is discontinued.

According to the company's accounting system, what is the net operating income earned by product V41B? Include all costs in this calculation—whether relevant or not.

$60,000

$(521,000)

$(60,000)

$521,000

7.

Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 54,000 units per month is as follows:

Direct materials	$49.60
Direct labor	$9.50
Variable manufacturing overhead	$2.50
Fixed manufacturing overhead	$20.10
Variable selling & administrative expense	$4.60
Fixed selling & administrative expense	$22

The normal selling price of the product is $114.10 per unit.

An order has been received from an overseas customer for 3,400 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $2.60 less per unit on this order than on normal sales.

Direct labor is a variable cost in this company.

Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $90.40 per unit. By how much would this special order increase (decrease) the company's net operating income for the month?

$(72,000)

$22,780

$91,120

$(60,860)

Answer 1

3) Residual income = Actual operating income-Minimum required income

= (270000*10%)-(75000*19%)

Residual income = 12750

So answer is a) $12750

4) Minimum required return = 658000*23% = 151340

So answer is b) $151340

5) Incrmental profit (loss) when ungrading = 230000-170000 = 60000

Incremental profit (loss) When sold in present condition = 40000

So answer is a) $20000 advantage

6)Calculate net operating income

Net operating income = 923000-402000-337000-244000 = -60000

So answer is c) (60000)

7) Incremental analysis :

Incremental revenue (3400*90.40)	307360
Incremental cost
Direct material (3400*49.60)	168640
Direct labour (3400*9.50)	32300
Variable manufacturing overhead (3400*2.5)	8500
Variable selling and administrative expense (3400*2)	6800
Total incrmental cost	216240
Incremental profit (loss)	91120

So answer is c) $91120