Cost Accounting

(TCO D) Which of the following performance measures will decrease if there is an increase in the accounts receivable?

	Return on Investment	Residual Income
(A)	Yes	Yes
(B)	No	Yes
(C)	Yes	No
(D)	No	No

(TCO D) Given the following data: What is the return on the investment (ROI)?

Sales	$50.000
Net operating income	$5,000
Contribution margin	$20,000
Average operating assets	$25,000
Stockholder's equity	$15,000

1. (TCO D) Seebach Corporation has two major business segments—Apparel and Accessories. Data concerning those segments for June appear below.

Sales revenues, Apparel	$700,000
Variable expenses, Apparel	$406,000
Traceable fixed expenses, Apparel	$98,000
Sales revenues, Accessories	$710,000
Variable expenses, Accessories	$312,000
Traceable fixed expenses, Accessories	$107,000

Common fixed expenses totaled $292,000 and were allocated as follows: $155,000 to the Apparel business segment and $137,000 to the Accessories business segment.

Required:

Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts. 

2. (TCO D) Eber Wares 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:

i. What is the division's margin?

ii. What is the division's turnover?

iii. What is the division's ROI?

iv. What is the division's residual income?

3. (TCOD) The management of Thews Corporation is considering dropping product E28I. Data from the company's accounting system appear below.

Sales	$480,000
Variable Expenses	$202,000
Fixed Manufacturing Expenses	$158,000
Fixed Selling and Administrative Expenses	$130,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $86,000 of the fixed manufacturing expenses and $67,000 of the fixed selling and administrative expenses are avoidable if product E28I is discontinued.

Required:

i. What is the net operating income earned by product E28I according to the company's accounting system? Show your work!

ii. What would be the effect on the company's overall net operating income of dropping product E28I? Should the product be dropped? Show your work!

4. (TCO D) Part F77 is used in one of Wilcutt Corporation's products. The company's Accounting Department reports the following costs of producing the 7,000 units of the part that are needed every year.

	Per Unit
Direct Materials	$7.00
Direct Labor	$6.00
Variable Overhead	$5.60
Supervisor's Salary	$4.70
Depreciation of Special Equipment	$1.50
Allocated General Overhead	$5.40

An outside supplier has offered to make the part and sell it to the company for $28.30 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $9,000 of these allocated general overhead costs would be avoided.

Required:

i. Prepare a report that shows the effect on the company's total net operating income of buying part F77 from the supplier rather than continuing to make it inside the company.

ii. Which alternative should the company choose?

5. (TCO D) Manning Co. manufactures and sells trophies for winners of athletic and other events. Its manufacturing plant has the capacity to produce 18,000 trophies each month; current monthly production is 15,300 trophies. The company normally charges $141 per trophy. Cost data for the current level of production are shown below.

Variable Costs
	Direct Materials	$948,600
	Direct Labor	$290,700
	Selling and Administrative	$41,300
Fixed Costs
	Manufacturing	$579,870
	Selling and Administrative	$134,640

The company has just received a special one-time order for 900 trophies at $73 each. For this particular order, no variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs.

Required:

Should the company accept this special order? Why?

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