# Costs and Net Operating Income

Topics: Costs, Investment, Variable cost Pages: 6 (1218 words) Published: February 15, 2012
Week 6 : Segment Reporting and Relevant Costs for Decisions - Quiz

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1. (TCO D) Which of the following performance measures will decrease if there is an increase in the accounts receivable?

(Points : 5)
Choice A
Choice B
Choice C
Choice D

2. (TCO D) Delmar Corporation is considering the use of residual income as a measure of the performance of its divisions. What major disadvantage of this method should the company consider before deciding to institute it? (Points : 5)        this method does not take into account differences in the size of divisions.        investments may be adopted that will decrease the overall return on investment.        the minimum required rate of return may eliminate desirable investments.        residual income does not measure how effectively the division manager controls costs.

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? (Points : 5)        9.5

10.2
9.8
9.2

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Week 6 : Segment Reporting and Relevant Costs for Decisions - Quiz

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1. (TCO D) Financial data for Beaker Company for last year appear below:

The company paid dividends of \$2,100 last year. The "Investment in Cedar Company" on the statement of financial position represents an investment in the stock of another company.

Required:

i. Compute the company's margin, turnover, and return on investment for last year.

ii. The Board of Directors of Beaker Company has set a minimum required return of 20%. What was the company's residual income last year? (Points : 15)

2. (TCO D) Eber Wares is a division of a major corporation. The following data are for the latest year of operations:

Sale 30,000,000
Net Operating Income 1,170,000
Avg Operating Assets 8,000,000
Th company minimum 18%

Required:

i. What is the division's margin?
Operating Income / Sales = Margin
1170000/30000000 = 3.9
ii. What is the division's turnover?
Sales / Assets = Asset Turnover
30,000,000/8,000,000 = 3.75
iii. What is the division's return on investment (ROI)?
iii. Return on investment = Net Operating income/ Avg. Operating assets = 1,170,000/8,000,000
=14.6%
iv. What is the division's residual income? (Points : 15)
iv. Residual income = Net Operating income - (Avg Operating Assets * Min required rate of return) = 1,170,000 - (8,000,000*0.18)
=270,000

3. (TCOD) The management of Thews Corporation is considering dropping product E28I. Data from the company's accounting system appear below:

Sales--------------------------------------------------------------\$480,000 Variable expenses---------------------------------------------\$202,000 Fixed manufacturing expense-------------------------------\$158,000 Fixed Selling and administrative expense----------------\$130,000

Read more: Ques 2: (TCO D) Ferro Wares is a division of a major corporation. - JustAnswer http://www.justanswer.com/homework/5w70q-ques-2-tco-d-ferro-wares-division-major-corporation.html#ixzz1fSLwRXV2 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that \$86,000 of the fixed manufacturing expenses and \$67,000 of the fixed selling and administrative expenses are avoidable if product E28I is discontinued.

Required:

i. What is the net operating income earned by product E28I according to the company's accounting system? Show your work!

ii. What would be the effect on the company's overall net operating income of dropping product E28I? Should the product be dropped? Show your work! (Points : 15)

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