1. (TCO E) Advertising a new product is a (n) (Points : 5)

organization-sustaining activity

batch-level activity.

unit-level activity.

product-level activity.

Question 2. 2. (TCO G) Given the following data, what is the return on investment (ROI)?

Sales

$125,000

Net operating income

$20,000

Contribution margin

$30,000

Average operating assets

$100,000

Stockholder's equity

$150,000

(Points : 5)

13.3%.

30.0%.

20.0%.

24.0%.

Question 3. 3. (TCO H) Which of the following is always a sunk cost? (Points : 5)

a cost that differs between alternatives.

an avoidable cost.

depreciation.

market value.

Page 2

Question 1. 1. (TCO H) Seabuck Corporation has two major business segmentsApparel and Accessories. Data concerning those segments for June appear below.

Sales revenues, Apparel

$800,000

Variable expenses, Apparel

$406,000

Traceable fixed expenses, Apparel

$98,000

Sales revenues, Accessories

$820,000

Variable expenses, Accessories

$312,000

Traceable fixed expenses, Accessories

$107,000

Common fixed expenses totaled $325,000 and were allocated as follows: $150,000 to the Apparel business segment and $175,000 to the Accessories business segment.

Required:

Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts. (Points : 15)

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

Sales

$38,000,000

Net Operating Income

$2,800,000

Average Operating Assets

$15,000,000

The company's minimum required rate of return

20%

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)

Question 3. 3. (TCO H) The management of Branner Corporation is considering dropping product S35K. Data from the company's accounting system appear below.

Sales

$900,000

Variable Expenses

$475,000

Fixed Manufacturing Expenses

$200,000

Fixed Selling and Administrative Expenses

$133,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $100,000 of the fixed manufacturing expenses and $75,000 of the fixed selling and administrative expenses are avoidable if product S35K is discontinued.

Required:

i. According to the company's accounting system, what is the net operating income earned by product S35K? Show your work!

ii. What would be the effect on the company's overall net operating income of dropping product S35K? Should the product be dropped? Show your work! (Points : 15)

Question 4. 4. (TCO H) James Company makes 30,000 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

$14.00

Direct Labor

$20.50

Variable Manufacturing Overhead

$7.50

Fixed Manufacturing Overhead

$15.75

Unit Product Cost

$57.75

An outside supplier has offered to sell the company all of the parts needed for $50.00 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 $90,000 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 $57.75 is relevant in the decision of whether to make or buy the part?

ii. Should James Company make or buy the part? (Provide numerical support for your answer) (Points : 15)

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

$484,500

Direct Labor

$142,500

Selling and Administrative

$135,038

Fixed Costs

Manufacturing

$185,275

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)