Accounting
Questions 5
1. Financial data for
Beaker Company for last year appear below.
Beaker Company
Statement of Financial Position
Statement of Financial Position
Beginning Balance Ending
Balance
Assets
Cash $50,000 $70,000
Accounts
receivable 20,000 25,000
Inventory 30,000 35,000
Plant
and Equipment (net) 120,000 110,000
Investment
in Cedar Company 80,000 100,000
Land
(undeveloped) 170,000 170,000
Total
Assets $470,000 510,000
Liabilities
and Owners' Equity
Accounts
payable $70,000 $90,000
Long-term
debt 250,000 250,000
Owner's
equity 150,000 170,000
Total
liabilities and owner's equity $470,000 $510,000
Beaker
Company
Income
Statement
Sales $414,000
Less
Operating Expenses 351,900
Net
Operating Income 62,100
Less
Interest and Taxes
Interest
Expense $30,000
Tax
Expense 10,000 40,000
Net
Income $22,000
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)
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. Eber Wares is
a division of a major corporation. The following data are for the latest year
of operations.
Sales $30,000,000
Net
Operating income $1,170,000
Average
operating assets $8,000,000
The
company's minimum required rate of return 18%
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)
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)
3. 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 Expenses $158,000
Fixed
Selling and Administrative Expenses $130,000
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)
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)
4. Rosiek
Corporation uses part A55 in one of its products. The company's accounting
department reports the following costs of producing the 4,000 units of the part
that are needed every year.
Per Unit
Direct
Materials $2.80
Direct
Labor $6.30
Variable
Overhead $8.50
Supervisor's
Salary $2.60
Depreciation
of Special Equipment $6.80
Allocated
General Overhead $6.10
An
outside supplier has offered to make the part and sell it to the company for
$32.30 each. If this offer is accepted, the supervisor's salary and all of the
variable costs, including direct labor, can be avoided. The special equipment
used to make the part was purchased many years ago and has no salvage value or
other use. The allocated general overhead represents fixed costs of the entire
company. If the outside supplier's offer were accepted, only $4,000 of these
allocated general overhead costs would be avoided. In addition, the space used
to produce part A55 could be used to make more of one of the company's other
products, generating an additional segment margin of $26,000 per year for that
product.
Required:
i. Prepare a report that shows the effect on the company's total net operating income of buying part A55 from the supplier rather than continuing to make it inside the company.
ii. Which alternative should the company choose? (Points : 15)
Required:
i. Prepare a report that shows the effect on the company's total net operating income of buying part A55 from the supplier rather than continuing to make it inside the company.
ii. Which alternative should the company choose? (Points : 15)
5. 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
Costs
Direct
Materials $948,600
Direct
Labor $290,700
Selling
and Administrative $41,300
Fixed
Costs
Manufacturing $579,870
Selling
and Administrative $134,640
The 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)
TUTORIAL PREVIEW
i
|
|
Keep the Product
|
Drop the Product
|
Difference
|
|
Sales
|
$480,000
|
$0
|
($480,000)
|
|
Variable Expenses
|
$202,000
|
$0
|
$202,000
|
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