Exam 11: Reporting for Control

The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow: Unit Selling Price \ 50 Unit Variable Cost \ 30 Total Fixed Costs \ 200,000 Average Operating Assets \ 750,000 Minimum Required Rate of Return 12\% -Suppose the manager of Axle desires a return on investment of 22%.In order to achieve this goal,Axle must sell how many units per year?

Financial data for Beaker Company for last year appear below: Beaker Company Statements of Financial Position Beginning Balance Ending Balance Assets: Cash \ 50,000 \ 70,000 Accounts receivable 20,000 25,000 Inventory 30,000 35,000 Plant and equipment (net) 120,000 110,000 Investment in Cedar Company 80,000 100,000 Land (underdeveloped) Total assets \ 470,000 \ 510,000 Liabilities and owners' equity: Accounts payable \ 70,000 \ 90,000 Long-term deby 250,000 250,000 Owner's' equity Total liabilities and owners' equity \ 470,000 \ 510,000 Beaker Company Income Statement Sa;es \ 414,000 Less operating expenses Net operating income 62,100 Less interest and taxes: Interest expense \ 30,000 Tax expense Operating Income The company paid dividends of $2,100 last year.The "Investment in Cedar 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 Beaker Company have set a minimum required return of 20%.What was the company's residual income last year?

Eade Company's quality cost report is to be based on the following data: Systems development \ 32,000 Final product testing and inspection \ 13,000 Quality data gathering, analysis, and reporting \ 11,000 Net cost of scrap \ 62,000 Returns arising from quality problems \ 59,000 Amortization of test equipment \ 57,000 Rework labour and overhead \ 18,000 Test and inspection of incoming materials \ 40,000 Product recalls \ 36,000 - What will be the total external failure cost appearing on the quality cost report?

Galben Company's quality cost report is to be based on the following data: Quality data gathering, analysis, and reporting \ 38,000 Supervision of testing and inspection activities \ 45,000 Liability arising from defective products \ 30,000 Technical support provided to suppliers \ 39,000 Disposal of defective products \ 72,000 Amortization of test equipment \ 55,000 Downtime caused by quality problems \ 96,000 Test and inspection of in-process goods \ 69,000 Cost of field servicing and handling complaints \ 52,000 Required: Prepare a quality cost report in good form with separate sections for prevention costs,appraisal costs,internal failure costs,and external failure costs.

Fabri Company's quality cost report is to be based on the following data: Liability arising from defective products \ 56,000 Lost sales due to poor quality \ 51,000 Test and inspection of in-process goods \ 47,000 Quality circles \ 17,000 Net cost of spoilage \ 93,000 Debugging software errors \ 29,000 Rework labour and overhead \ 95,000 Final product testing and inspection \ 32,000 Statistical process control activities \ 61,000 - What will be the total appraisal cost appearing on the quality cost report?

The following data have been extracted from the year-end reports of two companies: Company X and Company Y: Company X Company Y Sales \ 800,000 ? Operating income \ 56,000 ? Average operating assets ? \ 125,000 Margin ? 4\% Turnover ? 6 Return on investment 14\% ? Required: Fill in the missing data on the above table.

$\text { Harstin Corporation has provided the following data for the past year: }$ Sales \ 625,000 Gross Margin \ 70,000 Operating Income \ 50,000 Shareholders' Equity \ 90,000 Average Operating Assets \ 250,000 Residual Income \ 20,000 -What was the turnover for the past year?

In responsibility accounting,each segment in an organization should be charged with the costs for which it is responsible and over which it has control plus its share of common organizational costs.

Delmar Corporation is considering the use of residual income as a measure of the performance of its divisions.What major disadvantage of this method should the company consider before deciding to institute it?

There is a growing trend toward greater centralization for effective control as more businesses go global.

A balanced scorecard should contain every performance measure that can be expected to influence a company's profits.

Eagan Company's quality cost report is to be based on the following data: Quality training \ 75,000 Lost sales due to poor quality \ 94,000 Test and inspection of in-process goods \ 37,000 Test and inspection of incoming materials \ 65,000 Disposal of defective products \ 86,000 Quality data gathering, analysis, and reporting \ 92,000 Net cost of spoilage \ 27,000 Supervision of testing and inspection activities \ 10,000 Product recalls \ 38,000 - What will be the total appraisal cost appearing on the quality cost report?

Division B had an ROI last year of 15%.The division's minimum required rate of return is 10%.If the division's average operating assets last year were $450,000,what was the division's residual income for last year?

Some managers believe that residual income is superior to return on investment as a means of measuring performance,as it encourages the manager to make investment decisions that are more consistent with the interests of the company as a whole.

Division A produces a part with the following characteristics: Capacity in Units 50,000 units Selling Price per Unit \ 30 Variable Costs per Unit \ 18 Fixed Costs per Unit \ 3 Division B, another division in the company, would like to buy this part from Division A. Division B is presently purchasing the part from an outside source at $\$ 28$ per unit. If Division A sells to Division $B , \$ 1$ in variable costs can be avoided. - Suppose that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into its sales to outside customers.From the point of view of Division A,any sales to Division B should be priced no lower than which of the following?

The following information is available on Company B: Sales \ 950,000 Operating Income \ 56,000 Shareholders' Equity \ 100,000 Average Operating Assets \ 190,000 Minimum Required Rate of Return 20\% -What is Company B's residual income?

Which of the following is the numerator in the calculation of the turnover component of ROI?

$\text { Eacker Company's quality cost report is to be based on the following data: }$ Quality engineering \ 72,000 Net cost of spoilage \ 70,000 Re-entering data because of keying errors \ 88,000 Test and inspection of incoming materials \ 68,000 Test and inspection of in-process goods \ 97,000 Technical support provided to suppliers \ 83,000 Maintenance of test equipment \ 31,000 Product recalls \ 73,000 Warranty repairs and replacements \ 46,000 - What will be the total external failure cost appearing on the quality cost report?

Suppose a manager's performance is to be evaluated by residual income.Which of the following will NOT result in an increase in the residual income figure for this manager,assuming other factors remain constant?

Many firms tend to adopt a focus or a niche strategy instead of either a cost leadership or a differentiation strategy.