Question 1: The sales, income from operations, and invested assets for each division of Jamieson Company are as follows:
Sales Income From Operations Invested Assets
Division E $4,000,000 $550,000 $2,400,000
Division F 4,800,000 760,000 2,500,000
Division G 7,000,000 860,000 2,800,000
(a) Using the expanded expression, determine the profit margin, investment turnover, and rate of return on investment for each division. Round to one decimal place for the profit margin.
(b) Which is (are) the most profitable per dollar invested?
Question 2: The sales, income from operations, and invested assets for each division of Winstron Company are as follows:
Sales Income From Operations Invested Assets
Division C $5,000,000 $630,000 $3,900,000
Division D 6,800,000 760,000 4,300,000
Division E 3,750,000 750,000 7,250,000
Management has established a minimum rate of return for invested assets of 8%.
(a) Determine the residual income for each division.
(b) Based on residual income, which of the divisions is the most profitable.
Question 3: Product J is one of the many products manufactured and sold by Goodstein Company. An income statement by product line for the past year indicated a net loss for Product J of $12,250. This net loss resulted from sales of $260,000, cost of goods sold of $186,500, and operating expenses of $85,750. It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 40% of the operating expenses is fixed. If Product J is retained, the revenue, costs, and expenses are not expected to change significantly from those of the current year. However, because of the net loss, management is considering the elimination of the unprofitable endeavor. Because of the large number of products manufactured, the total fixed costs and expenses are not expected to decline significantly if Product J is discontinued.
Prepare a differential analysis report dated February 8 of the current year, on the proposal to discontinue Product J.
Question 4: Pnok Company has been purchasing a component, Part Q, for $18.90 a unit. Pnok is currently operating at 70% of capacity and no significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Part Q, determined by absorption costing methods, is estimated as follows:
Direct Materials $11.25
Direct Labor 4.50
Variable factory overhead 1.12
Fixed factory overhead 3.15
Total $20.02
Prepare a differential analysis report, dated March 12 of the current year, on the decision to make or buy Part Q
Question 5: FDE Manufacturing Company has a normal plant capacity of 37,500 units per month. Because of an extra large quantity of inventory on hand, it expects to produce only 30,000 units in May. Monthly fixed costs and expenses are $112,500 ($3 per unit at normal plant capacity) and variable costs and expenses are $8.25 per unit. The present selling price is $13.50 per unit. The company has an opportunity to sell 7,500 additional units at $9.00 per unit to an exporter who plans to market the product under its own brand name in a foreign market. The additional business is therefore not expected to affect the regular selling price or quantity of sales of FED Manufacturing Company.
Prepare a differential analysis report, dated April 21 of the current year, on the proposal to sell at the special price.
Question 6: An 8-year project is estimated to cost $360,000 and have no residual value. If the straight line depreciation method is used and estimated total net income is $86,400, determine the average rate of return.
Question 7: Proposals L and K each cost $500,000, have 6-year lives, and have expected total cash flows of $720,000. Proposal L is expected rto providew equal annual net cash flows of $120,000, while the net cash flows for Proposal K are a follows:
Year 1 $250,000
Year 2 200,000
Year 3 100,000
Year 4 90,000
Year 5 60,000
Year 6 20,000
Total $720,000
Determine the cash payback period for each proposal.
Question 8: A $500,000 capital investment proposal has an estimated life of four years and no residual value. The estimated net cash flows are as follows:
Year Net Cash Flow Year Net Cash Flow
1 $300,000 3 $208,000
2 260,000 4 180,000
The minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is .893, .797, .712, and .636 respectively. Determine the net present value.
Question 9: The net present value has been computed for Proposals P and Q. Relevant data are as follows:
Proposal P Proposal Q
Amount to be invested $265,000 $445,000
Total present value of net cash flow 286,500 425,000
Net present value 21,500 (20,000)
Determine the present value index for each proposal.