Question
Use the following to answer questions 1-2: Operating data from Tindall Company for last year is as follows: Sales $900,000 Average Stockholders' equity $500,000 Return
Use the following to answer questions 1-2:
Operating data from Tindall Company for last year is as follows:
| Sales | $900,000 |
| Average Stockholders' equity | $500,000 |
| Return on investment | 12% |
| Average operating assets (invested capital) | ? |
| Capital turnover | 1.5 |
| Residual income | ? |
| Minimum required rate of return (imputed interest rate) | 10% |
| Net Income | ? |
- The average operating assets (invested capital) was:
- $600,000
- $400,000
- $500,000
- $800,000
2. The sales margin used in ROI calculations was:
- 18%
- 8%
- 6.67%
- 15%
Use the following to answer question 3:
Jasper Corporation is organized into three separate divisions. The three divisional managers are evaluated at year-end, and bonuses are awarded based on ROI. Last year, Jasper Corporation produced a 12% return on investment.
The managers of Jasper's Iowa Division recently studied an investment opportunity that might assist in the division future growth. Relevant data follows.
| Iowa Division | Investment Opportunity |
Income | $12,800,000 | $4,200,000 |
Invested Capital | $80,000,000 | $30,000,000 |
3. What is the most likely reaction of Iowas management, given the structure allows Iowa a great deal of freedom and autonomy?
- Favor investment since it improves corporate ROI.
- Reject investment since it reduces corporate ROI.
- Favor investment since it improves division ROI.
- Reject investment since it reduces division ROI.
- Favor investment since it increases the investment base.
4. A factory that makes a part has significant idle capacity and has no alternate use for that capacity. The factory's opportunity cost of making this part is equal to:
- the variable manufacturing cost per unit.
- zero.
- the semi variable cost per unit
- the total manufacturing cost per unit
- the fixed manufacturing cost per unit.
5. Assuming no excess capacity, if the lowest acceptable transfer price charged to the buying division is $90 (based on the general transfer price rule) and the lost contribution margin per unit on outside sales is $40, then the additional variable cost per unit for products transferred internally must be:
- $90
- $40
- $130
- $50
6. The Amalgamated Division reported a residual income of $200,000 for the year just ended. The division had $8,000,000 of invested capital and $1,000,000 of income. On the basis of this information, the imputed interest rate of return was:
- 2.5%
- 10%
- 12.5%
- 20%
7. A division's return on investment may be improved by increasing (for each answer example, assume all other values stay constant):
- cost of goods sold and expenses.
- sales margin.
- administration expenses.
- capital investment.
- cost of capital.
8. ROI will directly indicate:
- the sales dollars generated per dollar of invested capital.
- the income generated per dollar of sales.
- how effectively a company used its invested capital.
- the income generated per dollar of current assets.
- the overall stability of a company's earnings over the years.
9. Which of the following is the correct mathematical expression to derive a company's capital turnover?
- Sales revenue invested capital.
- Contribution margin invested capital.
- Income invested capital.
- Invested capital sales revenue
- Investedcapitalincome.
- Bronx Corporation's Gauge Division manufactures and sells product no. 24, which is used in refrigeration systems. Per-unit variable manufacturing and period costs (e.g., selling, shipping) amount to $20 and $5, respectively. The Gauge Division can sell this item to external customers for $36 or, alternatively, transfer the product to Bronx's Refrigeration System Division. Refrigeration System is currently purchasing a similar unit from an outside firm for $33. Assume use of the general transfer-pricing rule.
Required: If Gauge has no excess capacity and was able to reduce the variable cost in internal transfer by $4 per unit, what transfer price would the Gauge Division be willing to set?
- $33
- $25
- $36
- $32
- $31
11. Which of the following is used in the calculation of both return on investment and residual income?
- Total stockholders' equity.
- Retained earnings.
- Invested capital.
- Total liabilities.
- The cost of capital.
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