Question 1

The Calculating Fashion Company has two operating divisions: North and South.The following information was collected from its financial statements. $$\begin{array} { | l | r | r | } 
\hline & \text { North } & \text { South } \
\hline \text { Operating inc ome } & \$ 15,375 & \$ 9,160 \
\hline \text { Sales } & 90,100 & 128,445 \
\hline \text { Average operating assets } & 47,620 & 37,690 \
\hline
\end{array}$$Required:
The South Division has a goal to increase its ROI to 30% by the end of next year.Compute the increase (decrease)required in each of the following items in order to achieve this goal.a.Operating assets
b.Total costs
c.Sales

Accepted Answer

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Question 2

Financial data for Beaker Company for last year appear below:
 
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $Beaker Company
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $Income Statement
$\begin{array}{|l|r|r|}
\hline \text { Sales } & & \$ 414,000 \
\hline \text { Less operating expenses } & & 351,900 \
\hline \text { Net operating income } & & 62,100 \
\hline \text { Less interest and taxes: } & & \
\hline \text { Interest expense } & \$ 30,000 & \
\hline \text { Tax expense } & 10,000 & 40,000 \
\hline \text { Net income } & & \$ 22,100 \
\hline
\end{array}$ 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 has set a minimum required return of 20%.What was the company's residual income last year?

Accepted Answer

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Question 3

If a division is evaluated using return on investment (ROI)without regard to how assets are financed,the denominator in the ROI calculation will be:

Accepted Answer

A)  current assets. 
B)  working capital. 
C)  total assets available. 
D)  total assets employeD.
Total assets employed takes out the financing.

Question 4

Seaside Enterprises has the following data for its three divisions for the year:$$\begin{array} { | l | r | r | r | } 
\hline & \text { SB } & \text { TH } & \text { GMA } \
\hline \text { Revenues } & \$ 1,200,000 & \$ 3,800,000 & \$ 2,800,000 \
\hline \text { Cost of sales } & 769,500 & 1,900,000 & 1,400,000 \
\hline \begin{array} { l } 
\text { Allocated comorate } \
\text { overhead }
\end{array} & 72,000 & 228,000 & 210,000 \
\hline \begin{array} { l } 
\text { Other general \& } \
\text { administration }
\end{array} & 158,500 & 1,100,000 & 1,100,000 \
\hline
\end{array}$$
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.

Accepted Answer

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Question 5

Nue Wines has the following data for its three divisions for the year:$$\begin{array} { | l | r | r | r | } 
\hline & \text { Ein } & \text { Zwei } & \text { Drei } \
\hline \text { Revenues } & \$ 12,000,000 & \$ 38,000,000 & \$ 28,000,000 \
\hline \text { Cost of sales } & 7,695,000 & 19,000,000 & 14,000,000 \
\hline \begin{array} { l } 
\text { Allocated } \
\text { corporate } \
\text { overhead }
\end{array} & 720,000 & 2,280,000 & 2,100,000 \
\hline \begin{array} { l } 
\text { Other general \& } \
\text { administration }
\end{array} & 1,585,000 & 11,000,000 & 11,000,000 \
\hline \begin{array} { l } 
\text { Return on } \
\text { Investment }
\end{array} & 15 \% & 12 \% & 9 \% \
\hline
\end{array}$$
Required:
a.Compute divisional operating income for each of the divisions.Assume taxes are 35%.b.Calculate the profit margin ratio for each division.c.Calculate the asset turnover for each division.

Accepted Answer

The answer of Nue Wines has the following data for...

Question 6

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

Accepted Answer

A)  Research & development costs. 
B)  Advertising expenditures. 
C)  Patent amortization. 
D)  Common stock.

Question 7

Edinger Industries is a division of a major corporation.The following data are for the latest year of operations:$$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 20,760,000 \
\hline \text { Net operating income } & \$ 2,563,480 \
\hline \text { Average operating assets } & \$ 6,000,000 \
\hline \begin{array} { l } 
\text { The company's minimum required rate of } \
\text { return }
\end{array} & 16 \% \
\hline
\end{array}$$ 
Required:
What is the division's residual income?

Accepted Answer

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Question 8

La Mesa Stores has the following data for its two divisions for the year:$$\begin{array} { | l | r | r | } 
\hline & \text { Uno } & \text { Dos } \
\hline \text { Revenues } & \$ 6,000,000 & \$ 18,000,000 \
\hline \text { Cost of sales } & 3,769,500 & 9,400,000 \
\hline \text { Allocated comorate overhead } & 400,000 & 1,200,000 \
\hline \text { Other general \& administration } & 772,000 & 5,700,000 \
\hline \text { Return on Investment } & 14 \% & 12 \% \
\hline
\end{array}$$
Required:
a.Compute divisional operating income for each of the divisions.Assume taxes are 35%.b.Calculate the profit margin ratio for each division.c.Calculate the asset turnover for each division.

Accepted Answer

The answer of La Mesa Stores has the following data...

Question 9

A manager can always increase his/her return on investment (ROI)by:

Accepted Answer

A)  reducing the asset turnover. 
B)  decreasing residual income. 
C)  increasing the operating profit margin. 
D)  expanding operating assets while holding sales and expenses constant.

Question 10

The following information is available about the Charger Division of Weston Company.Weston requires a return of 8% from all divisions. $$\begin{array} { | l | l | } 
\hline \text { Charger Division Earnings from operations } & \$ 12,854,000 \
\hline \text { Charger Division Sales } & \$ 92,500,000 \
\hline \text { Charger Division Identitiable Assets } & \$ 156,000,000 \
\hline
\end{array}$$Required:
(use four decimal places in you calculation)
a.Compute the ROI for the Charger Division.b.Compute the residual income for the Charger Division.

Accepted Answer

The answer of The following information is available about the...

Question 11

Big Sky Industries is a division of a major corporation.The following data are for the latest year of operations: $$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 12,700,000 \
\hline \text { Net operating income } & \$ 1,054,100 \
\hline \text { Average operating assets } & \$ 5,000,000 \
\hline \text { The company's minimum required rate of } & 16 \% \
\text { return } & \
\hline
\end{array}$$
Required:
a.What is the division's return on investment (ROI)?
b.What is the division's residual income?

Accepted Answer

The answer of Big Sky Industries is a division of...

Question 12

A division earning a profit will increase its return on investment (ROI)if it increases operating expenses and:

Accepted Answer

A)  sales by the same dollar amount. 
B)  sales by the same percentage. 
C)  investment by the same dollar amount. 
D)  investment by the same percentage.

Question 13

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,then the division's residual income for last year was:

Accepted Answer

A)  $67,500. 
B)  $22,500. 
C)  $37,500. 
D)  $45,000.

Question 14

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

Accepted Answer

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

Question 15

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:

Accepted Answer

A)  $6,000. 
B)  $2,000. 
C)  $18,000. 
D)  it is impossible to determine from the data given.

Question 16

In 2016,Evans Corporation had an operating profit of $750,000 and a residual income of $300,000.If Evans' cost of capital is 15%,what is the amount of the invested capital?

Accepted Answer

A)  $5,000,000. 
B)  $3,000,000. 
C)  $2,000,000. 
D)  $1,250,000.

Question 17

Using net book values instead of gross book values to compute return on investment (ROI)might encourage an investment center manager to delay replacing inefficient assets until they are fully depreciated.

Accepted Answer

A) True 
 B)False

Question 18

After-tax income divided by sales is called the:

Accepted Answer

A)  gross margin ratio. 
B)  profit margin ratio. 
C)  operating margin ratio. 
D)  contribution margin ratio.

Question 19

The Jones Company purchased assets costing $200,000 which will be depreciated over 5-years using straight-line depreciation and no salvage value.The Jones also purchased land and other assets,which are not depreciable at a cost of $200,000.It is estimated that in 5-years,the value of these assets will be unchanged.Assume that annual cash profits are $80,000 and,for return on investment (ROI)calculations,the company uses end-of-year asset values.If sales each year average $840,000,what will be the asset turnover using gross book value?

Accepted Answer

A)  3.0. 
B)  2.6. 
C)  2.1. 
D)  1.9.

Question 20

How will decreases in the following items affect residual income? $$\begin{array} { | l | l | l | } 
\hline & \text { Erpenses } & \text { Inventory } \
\hline \text { A. } & \text { Decrease } & \text { Decrease } \
\hline \text { B. } & \text { Decrease } & \text { Increase } \
\hline \text { C. } & \text { Increase } & \text { Decrease } \
\hline \text { D. } & \text { Increase } & \text { Increase } \
\hline
\end{array}$$

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Exam 14: Business Unit Performance Measurement

If a division is evaluated using return on investment (ROI) without regard to how assets are financed,the denominator in the ROI calculation will be:

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

A manager can always increase his/her return on investment (ROI) by:

A division earning a profit will increase its return on investment (ROI) if it increases operating expenses and:

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,then the division's residual income for last year was:

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:

In 2016,Evans Corporation had an operating profit of $750,000 and a residual income of $300,000.If Evans' cost of capital is 15%,what is the amount of the invested capital?

Using net book values instead of gross book values to compute return on investment (ROI)might encourage an investment center manager to delay replacing inefficient assets until they are fully depreciated.

After-tax income divided by sales is called the: