1. If improvement in a performance measure on a balanced scorecard should lead to improvement in another performance measure, but does not, then employees must work harder. (Points : 2)
2. The use of return on investment (ROI) as a performance measure may lead managers to reject a project that would be favorable for the company as a whole.
3. Spar Company has calculated the following ratios for one of its investment centers:What is Spar's return on investment for this investment center?
4. Dukelow Corporation has two divisions: the Governmental Products Division and the Export Products Division. The Governmental Products Division's divisional segment margin is $255,000 and the Export Products Division's divisional segment margin is $59,800. The total amount of common fixed expenses not traceable to the individual divisions is $163,700. What is the company's net operating income?
5. In November, the Universal Solutions Division of Keaffaber Corporation had average operating assets of $480,000 and net operating income of $46,200. The company uses residual income, with a minimum required rate of return of 11%, to evaluate the performance of its divisions. What was the Universal Solutions Division's residual income in November?
6. Sunk costs are costs that have proven to be unproductive.
7. Consistency demands that a cost that is relevant in one decision be regarded as relevant in other decisions as well.
8. An existing asset should not be replaced until its original cost has been fully recovered.
9. Kinsi Corporation manufactures five different products. All five of these products must pass through a stamping machine in its fabrication department. This machine is Kinsi's constrained resource. Kinsi would make the most profit if it produces the product that:
- uses the lowest number of stamping machine hours.
- generates the highest contribution margin per unit.
- generates the highest contribution margin ratio.
- generates the highest contribution margin per stamping machine hour.
10. Winder Corporation is a specialty component manufacturer with idle capacity. Management would like to use its extra capacity to generate additional profits. A potential customer has offered to buy 3,000 units of component QEA. Each unit of QEA requires 5 units of material F85 and 5 units of material E71. Data concerning these two materials follow:
Material F85 is in use in many of the company's products and is routinely replenished. Material E71 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up.
What would be the relevant cost of the materials, in total, for purposes of determining a minimum acceptable price for the order for product QEA?
- $126,702
- $141,750
- $126,295
- $145,965
11. Sharp Company produces 8,000 parts each year, which are used in the production of one of its products. The unit product cost of a part is $36, computed as follows:
The parts can be purchased from an outside supplier for only $28 each. The space in which the parts are now produced would be idle and fixed production costs would be reduced by one-fourth. If the parts are purchased from the outside supplier, the annual impact on the company's operating income will be:
- $24,000 increase
- $24,000 decrease
- $56,000 increase
- $56,000 decrease
12. Gallerani Corporation has received a request for a special order of 6,000 units of product A90 for $21.20 each. Product A90's unit product cost is $16.20, determined as follows:
Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like modifications made to product A90 that would increase the variable costs by $4.20 per unit and that would require an investment of $21,000 in special molds that would have no salvage value.
This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. If the special order is accepted, the company's overall net operating income would increase (decrease) by:
- ($18,600)
- ($16,200)
- $30,000
- $5,400
13. An automated turning machine is the current constraint at Jordison Corporation. Three products use this constrained resource. Data concerning those products appear below:
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.
- LN, JQ, RQ
- RQ, LN, JQ
- RQ, JQ, LN
- JQ, RQ, LN
14. Two alternatives, code-named X and Y, are under consideration at Guyer Corporation. Costs associated with the alternatives are listed below.
- Alternative X Alternative Y
- Materials costs $41,000 $59,000
- Processing costs $45,000 $45,000
- Equipment rental $17,000 $17,000
- Occupancy costs $16,000 $24,000
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.)
- Neither materials costs nor processing costs are relevant
- Only processing costs are relevant
- Only materials costs are relevant
- Both materials costs and processing costs are relevant
15. The management of Bonga Corporation is considering dropping product D74F. Data from the company's accounting system appear below:
- Sales $830,000
- Variable expenses $390,000
- Fixed manufacturing expenses $266,000
- Fixed selling and administrative expenses $232,000
All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $111,000 of the fixed manufacturing expenses and $103,000 of the fixed selling and administrative expenses are avoidable if product D74F is discontinued.
What would be the effect on the company's overall net operating income if product D74F were dropped?
- Overall net operating income would increase by $226,000.
- Overall net operating income would increase by $58,000.
- Overall net operating income would decrease by $226,000.
- Overall net operating income would decrease by $58,000.