LA week 8

1. How much of the common fixed cost of $200,000 can be avoided by eliminating the bar?

a. None of it.

b. Some of it.

c. All of it.

2.Suppose square feet is used as the basis for allocating the common fixed cost of $200,000. How much would be allocated to the bar if the bar occupies 1,000 square feet and the restaurant 9,000 square feet?

3.If Hagland's allocates its common costs to the bar and the restaurant, what would be the reported profit of each segment?

4. Should the bar be eliminated?

a. Yes

b. No

5. Redmond Awnings, a division of Wrap-up Corp., has an operating income of $60,000 and average operating assets of $300,000. The required rate of return for the company is 15%. What is the division's ROI?

a. 25%

b. 5%

c. 15%

d. 20%

6. Redmond Awnings, a division of Wrap-up Corp., has an operating income of $60,000 and average operating assets of $300,000. If the manager of the division is evaluated based on ROI, will she want to make an investment of $100,000 that would generate additional operating income of $18,000 per year?

a. Yes

b. No

7. Redmond Awnings, a division of Wrap-up Corp., has an operating income of $60,000 and average operating assets of $300,000. The required rate of return for the company is 15%. What is the division's residual income?

a. $240,000

b. $ 45,000

c. $ 15,000

d. $ 51,000

8. If the manager of the Redmond Awnings division is evaluated based on residual income, will she want to make an investment of $100,000 that would generate additional operating income of $18,000 per year?

a. Yes

b. No