q.1

Elite Inc. has many divisions that are evaluated on the basis of return on investment (ROI). One division, Beta, makes boxes. A second division, Lambda, makes chocolates and needs 90,000 boxes per year. Beta incurs the following costs for one box:

Line Item Description	Cost
Direct materials	$0.40
Direct labor	0.70
Variable overhead	0.50
Fixed overhead	0.16
Total	$1.76

Beta has the capacity to make 720,000 boxes per year. Lambda currently buys its boxes from an outside supplier for $2.00 each (the same price that Beta sells its product for). Assume that Elite Inc. allows division managers to negotiate the transfer price. Beta is currently producing 650,000 boxes. If Beta and Lambda agree to transfer boxes, what is the floor of the bargaining range and which division sets it?

a.$1.48; Beta

b.$1.60; Beta

c.$1.35; Lambda

d.$1.48; Lambda

q.2

The following information pertains to the three divisions of Yang Company:

Line Item Description	Division A	Division B	Division C
Sales	?	?	$1,345,000
Net operating income	$48,000	$18,000	$82,000
Average operating assets	$420,000	?	?
Return on investment	?	15%	20%
Margin	0.200	0.015	?
Turnover	2.1	?	?
Target ROI	17%	14%	8%

What are the average operating assets for Division B?

a.$420,000

b.$120,000

c.$18,000

d.$125,000

Q.3

The manager of Synergy Company's Stock Division projects the following for next year:

Line Item Description	Amount
Sales	$195,000
Operating income	90,000
Operating assets	485,000

The manager can invest in an additional project that would require a $50,000 investment in additional assets and would generate $9,000 of additional income. The company's minimum rate of return is 15%. What is the residual income for the Stock Division without the additional investment?

a.$13,450

b.$12,250

c.$17,250

d.$18,000

e.$16,600

Q4

Which of the following is a weakness of the ROI performance measure?

a.It discourages managers from investing in projects that would decrease divisional ROI but increase the profitability of the company as a whole.

b.It encourages managers to focus on the long run rather than the short run.

c.It encourages myopic behavior.

d.All of these choices are disadvantages of the ROI measure.

Q.5.

Atlas Company provided the following information for last year:

Line Item Description	Amount
Operating income	$ 92,000
Sales	235,000
Beginning operating assets	410,000
Ending operating assets	440,000

Calculate Atlas's margin for last year. (Round answer to two decimal places.)

a.2.15

b.0.26

c.0.50

d.0.35

e.0.39