ScholarMatic: Explanation & Answer

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1. Aide Industries is a division
   of a major corporation. Data concerning the most recent year appears
   below:

The
division’s margin is closest to:

1. Chace Products is a division of
   a major corporation. Last year the division had total sales of
   $21,300,000, net operating income of $575,100, and average operating
   assets of $5,000,000. The company’s minimum required rate of return is
   12%.

   The division’s margin is closest to:

1. Chace Products is a division of
   a major corporation. Last year the division had total sales of
   $21,300,000, net operating income of $575,100, and average operating
   assets of $5,000,000. The company’s minimum required rate of return is
   12%.

   The division’s return on investment (ROI) is closest to:

1. The West Division of Shekarchi
   Corporation had average operating assets of $620,000 and net operating
   income of $80,100 in March. The minimum required rate of return for
   performance evaluation purposes is 14%.

   What was the West Division’s minimum required return in March?

1. Chace Products is a division of
   a major corporation. Last year the division had total sales of
   $21,300,000, net operating income of $575,100, and average operating
   assets of $5,000,000. The company’s minimum required rate of return is
   12%.

   The division’s turnover is closest to:

1. Chace Products is a division of
   a major corporation. Last year the division had total sales of
   $21,300,000, net operating income of $575,100, and average operating
   assets of $5,000,000. The company’s minimum required rate of return is
   12%.

   The division’s residual income is closest to:

1. Two alternatives, code-named X
   and Y, are under consideration at Afalava Corporation. Costs associated
   with the alternatives are listed below.

   Are the materials costs and processing costs relevant in the choice
   between alternatives X and Y? (Ignore the equipment rental and occupancy
   costs in this question.)

1. Ahsan Company makes 60,000
   units per year of a part it uses in the products it manufactures. The unit
   product cost of this part is computed as follows:

   An outside supplier has offered to sell the company all of these parts it
   needs for $45.70 a unit. If the company accepts this offer, the facilities
   now being used to make the part could be used to make more units of a
   product that is in high demand. The additional contribution margin on this
   other product would be $318,000 per year.
   If the part were purchased from the outside supplier, all of the direct
   labor cost of the part would be avoided. However, $3.50 of the fixed
   manufacturing overhead cost being applied to the part would continue even
   if the part were purchased from the outside supplier. This fixed
   manufacturing overhead cost would be applied to the company’s remaining
   products.

   How much of the unit product cost of $40.50 is relevant in the decision of
   whether to make or buy the part?

1. The Tingey Company has 500
   obsolete microcomputers that are carried in inventory at a total cost of
   $720,000. If these microcomputers are upgraded at a total cost of
   $100,000, they can be sold for a total of $160,000. As an alternative, the
   microcomputers can be sold in their present condition for $50,000.

   Suppose the selling price of the upgraded computers has not been set. At
   what selling price per unit would the company be as well off upgrading the
   computers as if it just sold the computers in their present condition?

1. The Tingey Company has 500
   obsolete microcomputers that are carried in inventory at a total cost of
   $720,000. If these microcomputers are upgraded at a total cost of
   $100,000, they can be sold for a total of $160,000. As an alternative, the
   microcomputers can be sold in their present condition for $50,000.

   What is the net advantage or disadvantage to the company from upgrading
   the computers rather than selling them in their present condition?

1. Peluso Company, a manufacturer
   of snowmobiles, is operating at 70% of plant capacity. Peluso’s plant
   manager is considering making the headlights now being purchased from an
   outside supplier for $11 each. The Peluso plant has idle equipment that
   could be used to manufacture the headlights. The design engineer estimates
   that each headlight requires $4 of direct materials, $3 of direct labor,
   and $6.00 of manufacturing overhead. Forty percent of the manufacturing
   overhead is a fixed cost that would be unaffected by this decision. A
   decision by Peluso Company to manufacture the headlights should result in
   a net gain (loss) for each headlight of:

1. Part
   S00 is used in one of Morsey Corporation’s products. The company makes
   6,000 units of this part each year. The company’s Accounting Department
   reports the following costs of producing the part at this level of
   activity:

1. An
   outside supplier has offered to produce this part and sell it to the
   company for $16.10 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 $6,000 of these allocated general
   overhead costs would be avoided.

If management decides to buy part S00 from the outside
supplier rather than to continue making the part, what would be the annual
impact on the company’s overall net operating income?

1. Two alternatives, code-named X
   and Y, are under consideration at Afalava Corporation. Costs associated
   with the alternatives are listed below.

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   What is the differential cost of Alternative Y over Alternative X,
   including all of the relevant costs?

1. Lusk Company produces and sells
   15,000 units of Product A each month. The selling price of Product A is
   $20 per unit, and variable expenses are $14 per unit. A study has been
   made concerning whether Product A should be discontinued. The study shows
   that $70,000 of the $100,000 in fixed expenses charged to Product A would
   continue even if the product was discontinued. These data indicate that if
   Product A is discontinued, the company’s overall net operating income
   would:

1. The management of Freshwater
   Corporation is considering dropping product C11B. Data from the company’s
   accounting system appear below:

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   All fixed expenses of the company are fully allocated to products in the company’s
   accounting system. Further investigation has revealed that $211,000 of the
   fixed manufacturing expenses and $122,000 of the fixed selling and
   administrative expenses are avoidable if product C11B is discontinued.

   According to the company’s accounting system, what is the net operating
   income earned by product C11B?

ScholarMatic: Explanation & Answer

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