Acc505 Managerial Accounting: Week 6 Segment Reporting and Relevant Costs for Decisions (June 2013)

Acc505 Managerial Accounting
Week 6 - Segment Reporting and Relevant Costs for Decisions (June 2013)

1. (TCO D) A company that has a profit can increase its return on investment by (Points : 5)
increasing sales revenue and operating expenses by the same dollar amount.
increasing average operating assets and operating expenses by the same dollar amount.
increasing sales revenue and operating expenses by the same percentage.
decreasing average operating assets and sales by the same percentage.

2. (TCO D) For which of the following decisions are opportunity costs relevant?
The decision to make or buy a needed part The decision to keep or drop a product line
(A) Yes Yes
(B) Yes No
(C) No Yes
(D) No No
(Points : 5)
Choice A
Choice B
Choice C
Choice D

3. (TCO D) For which of the following decisions are sunk costs relevant? (Points : 5)
The decision to keep an old machine or buy a new one
The decision to sell a product at the split-off point or after further processing
The decision to accept or reject a special order offer
All of the above
None of the above

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.

Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts. (Points : 15)

2. (TCO D) Ferro Wares is a division of a major corporation. The following data are for the latest year of operations.
Sales $33,040,000
Net Operating Income $1,453,760
Average Operating Assets $8,000,000
The company's minimum required rate of return 18%

i. What is the division's ROI?
ii. What is the division's residual income? (Points : 15)

3. (TCO D) Tjelmeland Corporation is considering dropping product S85U. Data from the company's accounting system appear below.
Sales $360,000
Variable Expenses $158,000
Fixed Manufacturing Expenses $119,000
Fixed Selling and Administrative Expenses $94,000
All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $55,000 of the fixed manufacturing expenses and $71,000 of the fixed selling and administrative expenses are avoidable if product S85U is discontinued.

i. According to the company's accounting system, what is the net operating income earned by product S85U? Show your work!
ii. What would be the effect on the company's overall net operating income of dropping product S85U? Should the product be dropped? Show your work! (Points : 15)

4. (TCO D) Fouch Company makes 30,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows.
Direct Materials $15.70
Direct Labor $17.50
Variable Manufacturing Overhead $4.50
Fixed Manufacturing Overhead $14.60
Unit Product Cost $52.30
An outside supplier has offered to sell the company all of these parts it needs for $51.90 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 $219,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $6.20 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.

i. How much of the unit product cost of $52.30 is relevant in the decision of whether to make or buy the part?
ii. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?
iii. What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 30,000 units required each year? (Points : 15)

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.

Should the company accept this special order? Why? (Points : 15)
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