The Maxim Corporation reported the following operating results for its three divisions: South, West, and East. $\begin{array}{lrrrrr} &\text { South Division }&\text { West Division}&\text { East Division }\\ \text { Sales } & \$ 380,000 & \$ 1,700,000 & \$ 2,000,000 \\ \text { After-tax income } & \$ 20,000 & \$50,000& \$ 100,000\\ \text { Divisional assets } & \$ 200,000 & \$ 625,00 0& \$ 800,000 \end{array}$ - Which division has the largest asset turnover?

A) South. B) West. C) East. D) All three divisions have the same asset turnover. A) South. B) West. C) East. D) All three divisions have the same asset turnover.

The following information pertains to Artemis Co. for the year ended December 31: (CPA adapted) \[\begin{array} { l l } \text { Sales } & \$ 600,000 \\ \text { Income } & \$ 100,000 \\ \text { Capital irvestrnent } & \$ 400,000 \end{array}\] Which of the following equations should be used to compute Artemis' return on investment (ROI)?

A) (4/6) × (6/1) = ROI B) (1/6) × (6/4) = ROI C) (4/6) × (1/6) = ROI D) (6/4) × (6/1) = ROI A) (4/6) × (6/1) = ROI B) (1/6) × (6/4) = ROI C) (4/6) × (1/6) = ROI D) (6/4) × (6/1) = ROI

The following data are available for the South Division of Manhattan Products, Inc. and the single product it makes: $\begin{array}{lrr} \text { Unit selling price } &\$20\\ \text { Variable cost per unit } &\$12\\ \text { Annual fixed costs} &\$280,000\\ \text { Average operating assets } &\$1,500,000\\ \end{array}$ How many units must South sell each year to have an ROI of 16%?

A) 240,000. B) 1,300,000. C) 52,000. D) 65,000. A) 240,000. B) 1,300,000. C) 52,000. D) 65,000.

Bleu Stone is a division of a major corporation. The following data are for the latest year of operations: $\begin{array}{l} \text { Sales } & \$ 33,040,000 \\ \text { Net operating income } & \$ 1,453,760 \\ \text { Average operating assets } & \$ 8,000,000\\ \text { The company's minimum required rate of return }&18\% \end{array}$ Required: a. What is the division's return on investment (ROI)? b. What is the division's residual income?

a. ROI = Net operating income ÷ Average

La Mesa Foods has the following data for its two divisions for the year: \[\begin{array} { l r r } & \text { Uno } &{ \text { Dos } } \\ \text { Reverues } & \$ 6 0 0 , 0 0 0 & \$ 1,900,000 \\ \text { Cost of sales } & 384,750 & 950,000 \\ \text { Allocated copporate overhead } & 36,000 & 114,000 \\ \text { Other general \& adrniristration } & 79,250 & 550,000 \end{array}\] Required: a. Compute divisional operating income for each of the divisions. Assume taxes are 30%. b. Calculate the gross margin ratio for each division. c. Calculate the operating margin ratio for each division. d. Calculate the profit margin ratio for each division.

a. b. Uno: $215,250/600,000 = 35.88%;

The Maxim Corporation reported the following operating results for its three divisions: South, West, and East. $\begin{array}{lrrrrr} &\text { South Division }&\text { West Division}&\text { East Division }\\ \text { Sales } & \$ 380,000 & \$ 1,700,000 & \$ 2,000,000 \\ \text { After-tax income } & \$ 20,000 & \$50,000& \$ 100,000\\ \text { Divisional assets } & \$ 200,000 & \$ 625,00 0& \$ 800,000 \end{array}$ - Which division has the smallest return on investment (ROI)?

A) South. B) West. C) East. D) All three divisions have the same ROI. A) South. B) West. C) East. D) All three divisions have the same ROI.

How will decreases in the following items affect return on investment (ROI)? $\begin{array} { l c c } & \text { Decrease in Sales } & \text { Decrease in Equipment } \\\end{array}$

A) $\begin{array} { l c c } & \text { Decrease ROI } && \text { Decrease ROI } \\\end{array}$ B) $\begin{array} { l c c } & \text { Decrease ROI } && \text { Increase ROI } \\\end{array}$ C) $\begin{array} { l c c } & \text { Increase ROI } && \text { Decrease ROI } \\\end{array}$ D) $\begin{array} { l c c } & \text { Increase ROI } && \text { Increase ROI } \\ \end{array}$ A) Option A B) Option B C) Option C D) Option D A) $\begin{array} { l c c } & \text { Decrease ROI } && \text { Decrease ROI } \\\end{array}$ B) $\begin{array} { l c c } & \text { Decrease ROI } && \text { Increase ROI } \\\end{array}$ C) $\begin{array} { l c c } & \text { Increase ROI } && \text { Decrease ROI } \\\end{array}$ D) $\begin{array} { l c c } & \text { Increase ROI } && \text { Increase ROI } \\ \end{array}$ A) Option A B) Option B C) Option C D) Option D

The Maxim Corporation reported the following operating results for its three divisions: South, West, and East. $\begin{array}{lrrrrr} &\text { South Division }&\text { West Division}&\text { East Division }\\ \text { Sales } & \$ 380,000 & \$ 1,700,000 & \$ 2,000,000 \\ \text { After-tax income } & \$ 20,000 & \$50,000& \$ 100,000\\ \text { Divisional assets } & \$ 200,000 & \$ 625,00 0& \$ 800,000 \end{array}$ - Which division has the highest profit margin?

A) South. B) West. C) East. D) All three divisions have the same profit margin. A) South. B) West. C) East. D) All three divisions have the same profit margin.

Mallory, Inc. has the following data available for two of its divisions for last year: \[\begin{array} { l c r } && \text { Europearn } \\ & \text { Asian Division } & \text {Division } \\ \text { Sales } & \$ 460,000 & \$ 900,000 \\ \text { Contribution Margin } & 184,000 & 470,000 \\ \text { Operating income } & 92,000 & 90,000 \\ \text { Average operating assets } & 368,000 & 750,000 \\ \text { Weighted average cost of capital } & 14 \% & 14 \% \end{array}\] The tax rate for Mallory, Inc. is 18%. Required: (1) Compute the following for each division: (a) Profit margin. (b) Asset turnover. (c) ROI. (d) Residual income. (e) EVA (assume there are no current liabilities). (2) Briefly discuss which division appears most successful and why?

(1) (a) Asian Profit margin = [$92,000 ×

The following information is available for Sweet Dreams Company: \[\begin{array} { l r r } \text { Sales } & \$ 100,000 \\ \text { Operating expenses } & \$ 94,000 \\ \text { Operating assets } & \$ 40,000 \\ \text { Stockholder's equity } & \$ 25,000 \\ \text { Cost of capital } & 10 \% \end{array}\] What is Sweet Dreams Company's return on investment (ROI)?

A) 6.0%. B) 10.0%. C) 15.0%. D) 24.0%. A) 6.0%. B) 10.0%. C) 15.0%. D) 24.0%.

The following information was presented by Outdoors Manufacturing Company for an asset purchased at the beginning of the previous year. \[\begin{array} { l c } \text { Original cost of the asset } & \$ 20,000 \\ \text { Useful life of the asset } & 10 \text { years } \\ \text { Annual operating profit, including depreciation } & \$ 4,000 \\ \text { Salvage value } &\$ - 0 - \end{array}\] What is the return on investment (ROI) assuming Outdoors uses (a) the straight-line method for depreciation and (b) beginning-of-year net book values to compute ROI?

A) 11.1%. B) 20.0%. C) 10.0%. D) 22.2%. A) 11.1%. B) 20.0%. C) 10.0%. D) 22.2%.

Exam 14: Business Unit Performance Measurement

Big Sky Industries is a division of a major corporation. The following data are for the latest year of operations: Sales \ 24,900,000 Net operating income \ 1,319,700 Average operating assets \ 6,000,000 The company's minimum required rate of return 12\% Required: a. What is the division's margin? b. What is the division's turnover? c. What is the division's return on investment (ROI)? d. What is the division's residual income?

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Question 1

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a. Margin = Net operating income ÷ Sales = $1,319,700 ÷ $24,900,000 = 5.3%.
b. Turnover = Sales ÷ Average operating assets = $24,900,000 ÷ $6,000,000 = 4.2.
c. ROI = Net operating income ÷ Average operating assets = $1,319,700 ÷ $6,000,000 = 22.0%.
d. Residual income = Net operating income - Average operating assets × Minimum required rate of return = $1,319,700 - ($6,000,000 × 12%) = $1,319,700 − $720,000 = $599,700.

Rex Company's sales last year totaled $150,000 and its return on investment (ROI) was 12%. If the company's turnover was 3, then its net operating income for the year must have been:

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Question 2

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Bleu Stone 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: a. What is the division's margin? b. What is the division's turnover? c. What is the division's return on investment (ROI)? d. What is the division's residual income?

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Question 3

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a. Margin = Net operating income ÷ Sales = $1,170,000 ÷ $30,000,000 = 3.9%.
b. Turnover = Sales ÷ Average operating assets = $30,000,000 ÷ $8,000,000 = 3.8.
c. ROI = Net operating income ÷ Average operating assets = $1,170,000 ÷ $8,000,000 = 14.6%.
d. Residual income = Net operating income - (Minimum required rate of return × Average operating assets) = $1,170,000 - (18% × $8,000,000) = $(270,000).

The Maxim Corporation reported the following operating results for its three divisions: South, West, and East. South Division West Division East Division Sales \ 380,000 \ 1,700,000 \ 2,000,000 After-tax income \ 20,000 \5 0,000 \ 100,000 Divisional assets \ 200,000 \ 625,000 \ 800,000 - Which division has the largest asset turnover?

(Multiple Choice)

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Question 4

The following information pertains to Artemis Co. for the year ended December 31: (CPA adapted) Sales \ 600,000 Income \ 100,000 Capital irvestrnent \ 400,000 Which of the following equations should be used to compute Artemis' return on investment (ROI)?

(Multiple Choice)

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Question 5

The following data are available for the South Division of Manhattan Products, Inc. and the single product it makes: Unit selling price \2 0 Variable cost per unit \1 2 Annual fixed costs \2 80,000 Average operating assets \1 ,500,000 How many units must South sell each year to have an ROI of 16%?

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Question 6

The High Seas, Inc. manufactures water vessels and is organized into three large divisions: jet skis, fishing boats, and yachts. The following information presents operating revenues, operating incomes, and invested assets of the company over the last three years: Operating Revenues (all amounts in \ 000) 2020 2021 2022 Jet Skis \ 2,000 \ 3,000 \ 4,000 Fishing Boats 5,000 5,000 4,000 Yachts 8,000 7,000 8,000 Operating Income Jet Skis \ 500 \ 700 \ 1,000 Fishing Boats 3,000 2,500 2,000 Yachts 4,000 3,000 3,500 Invested Assets Jet Skis \1 ,200 \1 ,500 \2 ,000 Fishing Boats \2 ,000 \1 ,500 \1 ,5000 Yachts 3,000 2,500 3,000 The following table shows the number of managers covered by the current compensation package of The High Seas, Inc.: Nurnber of Marnagers 2020 2021 2022 Jet Skis 50 60 70 Fishirng Boats 200 180 160 Yachts 250 200 250 The current compensation package is an annual bonus award. The managers share in the bonus pool. The pool is calculated as 10% of the annual residual income of the company. The residual income is defined as operating income minus an interest charge of 14% of invested assets. Required: (1) Compute the bonus amount to be paid during each year. Also, compute the (average) individual executive bonus amounts. (2) If the bonus was calculated by divisional residual income, what would be the bonus amounts?

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Question 7

Bleu Stone is a division of a major corporation. The following data are for the latest year of operations: Sales \ 33,040,000 Net operating income \ 1,453,760 Average operating assets \ 8,000,000 The company's minimum required rate of return 18\% Required: a. What is the division's return on investment (ROI)? b. What is the division's residual income?

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Question 8

La Mesa Foods has the following data for its two divisions for the year: Uno Dos Reverues \ 600,000 \ 1,900,000 Cost of sales 384,750 950,000 Allocated copporate overhead 36,000 114,000 Other general \& adrniristration 79,250 550,000 Required: a. Compute divisional operating income for each of the divisions. Assume taxes are 30%. b. Calculate the gross margin ratio for each division. c. Calculate the operating margin ratio for each division. d. Calculate the profit margin ratio for each division.

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Question 9

The Maxim Corporation reported the following operating results for its three divisions: South, West, and East. South Division West Division East Division Sales \ 380,000 \ 1,700,000 \ 2,000,000 After-tax income \ 20,000 \5 0,000 \ 100,000 Divisional assets \ 200,000 \ 625,000 \ 800,000 - Which division has the smallest return on investment (ROI)?

(Multiple Choice)

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Question 10

Which of the following items would not be an example of an economic value added (EVA) adjustment to eliminate accounting distortions?

(Multiple Choice)

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Question 11

Financial data for Windsor, Inc. for last year appear below: $Financial data for Windsor, Inc. for last year appear below: \begin{array} {c} \text {Windsor, Inc.}\\ \text {Income Statement}\\ \begin{array} { l r r } \text { Sales } & \$ 1,750,000 \\ \text { Less operating expenses } & 1,470,000\\ \text { Net operating income } & 280,000\\ \text { Less interest and taxes: } & & \\ \text { Interest expense } & \$ 96,000 \\ \text { Tax expense } & 70,000 & 166,000 \\ \text { Net income } & &\$ 114,000 \\ \end{array} \end{array} The company paid dividends of $104,000 last year. The Investment in Pine Company on the statement of financial position represents an investment in the stock of another company. Required: a. Compute the company's margin, turnover, and return on investment for last year. b. The Board of Directors of Windsor, Inc. has set a minimum required return of 25%. What was the company's residual income last year?$ Windsor, Inc. Income Statement Sales \ 1,750,000 Less operating expenses 1,470,000 Net operating income 280,000 Less interest and taxes: Interest expense \ 96,000 Tax expense 70,000 166,000 Net income \ 114,000 The company paid dividends of $104,000 last year. The "Investment in Pine Company" on the statement of financial position represents an investment in the stock of another company. Required: a. Compute the company's margin, turnover, and return on investment for last year. b. The Board of Directors of Windsor, Inc. has set a minimum required return of 25%. What was the company's residual income last year?

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Question 12

How will decreases in the following items affect return on investment (ROI)? Decrease in Sales Decrease in Equipment A) Decrease ROI Decrease ROI B) Decrease ROI Increase ROI C) Increase ROI Decrease ROI D) Increase ROI Increase ROI

(Multiple Choice)

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Question 13

Which of the following statement(s) is/are false? (A) Residual income can be used to compare divisions of different sizes. (B) Residual income can be used to compare divisions that are profit centers.

(Multiple Choice)

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Question 14

The Maxim Corporation reported the following operating results for its three divisions: South, West, and East. South Division West Division East Division Sales \ 380,000 \ 1,700,000 \ 2,000,000 After-tax income \ 20,000 \5 0,000 \ 100,000 Divisional assets \ 200,000 \ 625,000 \ 800,000 - Which division has the highest profit margin?

(Multiple Choice)

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Question 15

Mallory, Inc. has the following data available for two of its divisions for last year: Europearn Asian Division Division Sales \ 460,000 \ 900,000 Contribution Margin 184,000 470,000 Operating income 92,000 90,000 Average operating assets 368,000 750,000 Weighted average cost of capital 14\% 14\% The tax rate for Mallory, Inc. is 18%. Required: (1) Compute the following for each division: (a) Profit margin. (b) Asset turnover. (c) ROI. (d) Residual income. (e) EVA (assume there are no current liabilities). (2) Briefly discuss which division appears most successful and why?

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Question 16

How does the use of residual income overcome the limitations of using return on investment?

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Question 17

The following information is available for Sweet Dreams Company: Sales \ 100,000 Operating expenses \ 94,000 Operating assets \ 40,000 Stockholder's equity \ 25,000 Cost of capital 10\% What is Sweet Dreams Company's return on investment (ROI)?

(Multiple Choice)

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Question 18

What are two disadvantages of using divisional income as a performance measure?

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Question 19

The following information was presented by Outdoors Manufacturing Company for an asset purchased at the beginning of the previous year. Original cost of the asset \ 20,000 Useful life of the asset 10 years Annual operating profit, including depreciation \ 4,000 Salvage value \ -0- What is the return on investment (ROI) assuming Outdoors uses (a) the straight-line method for depreciation and (b) beginning-of-year net book values to compute ROI?

(Multiple Choice)

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Question 20

Showing 1 - 20 of 147

Rex Company's sales last year totaled $150,000 and its return on investment (ROI) was 12%. If the company's turnover was 3, then its net operating income for the year must have been:

The following information pertains to Artemis Co. for the year ended December 31: (CPA adapted) Sales \ 600,000 Income \ 100,000 Capital irvestrnent \ 400,000 Which of the following equations should be used to compute Artemis' return on investment (ROI)?

The following data are available for the South Division of Manhattan Products, Inc. and the single product it makes: Unit selling price \2 0 Variable cost per unit \1 2 Annual fixed costs \2 80,000 Average operating assets \1 ,500,000 How many units must South sell each year to have an ROI of 16%?

Which of the following items would not be an example of an economic value added (EVA) adjustment to eliminate accounting distortions?

How will decreases in the following items affect return on investment (ROI)? Decrease in Sales Decrease in Equipment A) Decrease ROI Decrease ROI B) Decrease ROI Increase ROI C) Increase ROI Decrease ROI D) Increase ROI Increase ROI

Which of the following statement(s) is/are false? (A) Residual income can be used to compare divisions of different sizes. (B) Residual income can be used to compare divisions that are profit centers.

How does the use of residual income overcome the limitations of using return on investment?

The following information is available for Sweet Dreams Company: Sales \ 100,000 Operating expenses \ 94,000 Operating assets \ 40,000 Stockholder's equity \ 25,000 Cost of capital 10\% What is Sweet Dreams Company's return on investment (ROI)?

What are two disadvantages of using divisional income as a performance measure?

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