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Question 1. Devlin Company has two divisions, C and D. The overall company contribution margin ratio is 30%, with sales in the two divisions totaling $500,000. If variable expenses are $300,000 in Division C, and if Division C's contribution margin ratio is 25%, then sales in Division D must be?

Answer:

$100,000

$500,000-($300,000/(1-.25))= 500,000-400,000 = 100,000

Question 2. If Toxemia wants to maximize its profitability in the upcoming year, which flavor or flavors should Toxemia discontinue?

Answer: Wimpy and Mild

Question 3. Younie Corporation has two divisions: the South Division and the West Division. The corporation's net operating income is $26,900. The South Division's divisional segment margin is $42,800 and the West Division's divisional segment margin is $29,900. What is the amount of the common fixed expense not traceable to the individual divisions?

Answer: $45,800

(42,800+29900-26,900) = 45,800

Question 4. Miscavage Corporation has two divisions: the Beta Division and the Alpha Division. The Beta Division has sales of $580,000, variable expenses of $301,600, and traceable fixed expenses of $186,500. The Alpha Division has sales of $510,000, variable expenses of $178,500, and traceable fixed expenses of $222,100. The total amount of common fixed expenses not traceable to the individual divisions is $235,500. What is the company's net operating income?

Answer: Netoperating income for the company is ($34,200)

Question 5. Mike Corporation uses residual income to evaluate the performance of its divisions. The company's minimum required rate of return is 14%. In January, the Commercial Products Division had average operating assets of $970,000 and net operating income of $143,700. What was the Commercial Products Division's residual income in January?

Answer: ROI = 14.815%

(143700/970,000*100) = 14.815%

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Question 6. Rice Corporation currently operates two divisions which had operating results last year as follows:

Since the Troy Division also sustained an operating loss in the prior year, Rice's president is considering the elimination of this division. Troy Division's traceable fixed costs could be avoided if the division were eliminated. The total common corporate costs would be unaffected by the decision. If the Troy Division had been eliminated at the beginning of last year, Rice Corporation's operating income for last year would have been:

Answer :

$30,000 lower
Current income = 75,000
If troy is dropped then income would be : 90,000-45000 = 45,000
So there would be a decline in 30,000 profit.

Question 7. ABD Realty manages five apartment complexes in its region.

How many apartment complexes ABD Realty manages. The apartment complex(es) that ABD Realty should consider dropping is (are):

Answer :

C) X, Y

Question 8. Motor Company manufactures 10,000 units of Part M-l each year for use in its production.

Should Motor Company accept Valve Company's offer, and why?

Answer:

A) No, because it would be $5,000 cheaper to make the part.

Question 9. Kingston Company needs 10,000 units of a certain part to be used in its production cycle. The following information is available concerning Kingston's unit product cost:

In deciding whether to make or buy the part, the total relevant costs to make the part internally are

Answer :
$480,000 ( 10000 units @42 + 10000*15*40% = 420,000 + 60,000)

Question 10. The following standard costs pertain to a component part manufactured by Bor Company:
An outside supplier has offered to supply all of the parts needed by Bor Company for $50 each. In the decision to "make or buy," what is the relevant unit cost to make the part internally?

Answer :

$30( $4+$10+40%*40 = 4+ 10+16)
Relevant cost per unit:
Direct materials $ 4
Direct labor 10
Manufacturing overhead ($40 × 0.40) 16
Relevant manufacturing cost $30

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Question 11. Sardi Inc. is considering whether to continue to make a component or to buy it from an outside supplier. The company uses 17,000 of the components each year. The unit product cost of the component according to the company's cost accounting system is given as follows:

When deciding whether to make or buy the component, what cost of making the component should be compared to the price of buying the component?

Answer :

$24.21

Relevant cost per unit:

*$7.00 ÷ 4 minutes = $1.75 per minute; $1.75 per minute × 2 minutes = $3.50

Question 12. Rebelo Corporation is presently making part E07 that is used in one of its products. A total of 17,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity:

What would be the annual impact on the company's overall net operating income?Answer

Answer:

Net operating income would decline by $163,200 per year

The total cost of the make alternative is lower by $163,200 ($353,600 - $190,400).

Question 13. Banfield Corporation makes three products that use compound W, the current constrained resource.

Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized.

Answer:

B) YI, VP, WX
Optimal production plan:

Question 14. Ouzts Corporation is considering two alternatives: A and B.

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

Answer: Only materials costs are relevant

Question 15. The Draper Company is considering dropping its Doombug toy due to continuing losses.

Under the given conditions, the change in annual operating income from discontinuing the production and sale of Doombugs would be:

Answer
$22,000 decrease ((40,000-8000)-10,000))

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