Edith Carolina is president of the Deed Corporation.

The company is decentralized, and leaves investment decisions up to the discretion of the division managers. Michael Sanders, manager of the Cosmetics Division, has had a return on investment of 14% for his division for the past three years and expects the division to have the same return in the coming year. Sanders has the opportunity to invest in a new line of cosmetics which is expected to have a return on investment of 12%.
Reference: 12-11

If the Deed Corporation evaluates managerial performance using residual income based on the corporate minimum required rate of return of 8%, what decision would be preferred by Edith Carolina and Michael Sanders?

a. b. c. d.

a. Item A b. Item B c. Item C d. Item D

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5.
(Points: 4) Cecille Products is a division of a major corporation. Last year the division had total sales of $7,940,000, net operating income of $254,080, and average operating assets of $2,000,000. The company's minimum required rate of return is 12%.
Reference: 12-13

The division's turnover is closest to: a. b. c. d. a. 0.13 b. 3.52 c. 3.97 d. 31.25

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6.
(Points: 4) Ahartz Industries is a division of a major corporation. Data concerning the most recent year appears below:

Reference: 12-16

The division's margin is closest to: a. b. c. d. a. 22.3% b. 25.6% c. 5.7% d. 31.3%

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7.
(Points: 4) Beade Industries is a division of a major corporation. Last year the division had total sales of $16,760,000, net operating income of $770,960, and average operating assets of $4,000,000.
Reference: 12-17

The division's turnover is closest to: a. b. c. d. a. 21.74 b. 4.19 c. 3.51 d. 0.19

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8.
(Points: 4) 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? a. b. c. d. a. -$6,600 b. $5,082 c. $6,600 d. -$5,082

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9.
(Points: 4) In order to properly report segment margin as a guide to long-run segment profitability and performance, fixed costs must be separated into two broad categories. One category is common fixed costs. What is the other category? a. b. c. d. a. discretionary fixed costs b. committed fixed costs c. traceable fixed costs d. specialized fixed costs

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10.
(Points: 4) Tubaugh Corporation has two major business segmentsEast and West. In December, the East business segment had sales revenues of $690,000, variable expenses of $352,000, and traceable fixed expenses of $104,000. During the same month, the West business segment had sales revenues of $140,000, variable expenses of $56,000, and traceable fixed expenses of $24,000. The common fixed expenses totaled $162,000 and were allocated as follows: $89,000 to the East business segment and $73,000 to the West business segment.
Reference: 12-4

The contribution margin of the West business segment is: a. b. c. d. a. $84,000 b. $234,000 c. $422,000 d. $145,000

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11.
(Points: 4) Spar Company has calculated the following ratios for one of its investment centers:

What is Spar's return on investment for this investment center? a. b. c. a. 50.0% b. 12.5% c. 15.0%

d.

d. 25.0%

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12.
(Points: 4) Data for January for Bondi Corporation and its two major business segments, North and South, appear below:

In addition, common fixed expenses totaled $179,000 and were allocated as follows: $93,000 to the North business segment and $86,000 to the South business segment.
Reference: 12-5

The contribution margin of the South business segment is: a. b. c. d. a. $198,000 b. $496,000 c. $219,000 d. $105,000

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13.
(Points: 4) Tubaugh Corporation has two major business segmentsEast and West. In December, the East business segment had sales revenues of $690,000, variable expenses of $352,000, and traceable fixed expenses of $104,000. During the same month, the West business segment had sales revenues of $140,000, variable expenses of $56,000, and traceable fixed expenses of $24,000. The common fixed expenses totaled $162,000 and were allocated as follows: $89,000 to the East business segment and $73,000 to the West business segment.
Reference: 12-4

A properly constructed segmented income statement in a contribution format would show that the segment margin of the East business segment is: a. a. $352,000

b. c. d.

b. $145,000 c. $234,000 d. $249,000

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14.
(Points: 4) The West Division of Cecchetti Corporation had average operating assets of $240,000 and net operating income of $42,200 in August. The minimum required rate of return for performance evaluation purposes is 19%.
Reference: 12-18

What was the West Division's minimum required return in August? a. b. c. d. a. $45,600 b. $42,200 c. $53,618 d. $8,018

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15.
(Points: 4) The Consumer Products Division of Goich Corporation had average operating assets of $800,000 and net operating income of $81,300 in May. The minimum required rate of return for performance evaluation purposes is 10%.
Reference: 12-19

What was the Consumer Products Division's minimum required return in May? a. b. c. d. a. $81,300 b. $8,130 c. $88,130 d. $80,000

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16.
(Points: 4) Azuki Corporation operates in two sales territories, urban and rural. Shown below is last year's income statement segmented by territory:

Azuki's common fixed expenses were $25,000 last year.

Reference: 12-3

If operations in rural areas would have been discontinued at the beginning of last year, how would this have changed the net operating income of Azuki Company as a whole? a. b. c. d. a. $5,000 increase b. $6,000 increase c. $11,000 increase d. $24,000 decrease

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17.
(Points: 4) The following information relates to the Quilt Division of TDS Corporation for last year:

Reference: 12-12

What was the Quilt Division's return on investment (ROI) for last year? a. b. c. d. a. 13% b. 18% c. 40% d. 45%

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18.
(Points: 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? a. b. c. d. a. $314,800 b. ($314,800) c. $151,100 d. $478,500

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19.
(Points: 4) Product A, which is produced by the Parts Division of BYP Corporation, sells for $14.25 on the outside market. The costs to make Product A as recorded by the company's cost accounting system are:

The Assembly Division of BYP Corporation requires a part much like Product A to make one of its products. The Assembly Division can buy this part from an outside supplier for $14.15. However, the Assembly Division could use Product A instead of this part purchased from an outside supplier. What is the most the Assembly Division would be willing to pay the Parts Division for Product A? a. b. c. d. a. $13.50 b. $14.25 c. $14.15 d. $14.00

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20.
(Points: 4) Beade Industries is a division of a major corporation. Last year the division had total sales of $16,760,000, net operating income of $770,960, and average operating assets of $4,000,000.
Reference: 12-17

The division's margin is closest to:

a. b. c. d.

a. 28.5% b. 23.9% c. 4.6% d. 19.3%

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21.
(Points: 4) The following information relates to the Quilt Division of TDS Corporation for last year:

Reference: 12-12

Assume that Quilt was being evaluated solely on the basis of residual income. Which of the following investment opportunities would Quilt want to invest in?

a. b. c. d.

a. Item A b. Item B c. Item C d. Item D

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22.
(Points: 4) a. b. Residual income is: a. Net operating income plus the minimum required return on average operating assets. b. Net operating income less the minimum required return on average operating assets.

c. d.

c. Contribution margin plus the minimum required return on average operating assets. d. Contribution margin less the minimum required return on average operating assets.

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23.
(Points: 4) Which of the following measures of performance encourages continued expansion by an investment center so long as it is able to earn a return in excess of the minimum required return on average operating assets? a. b. c. d. a. return on investment b. transfer pricing c. the contribution approach d. residual income

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24.
(Points: 4) Ahartz Industries is a division of a major corporation. Data concerning the most recent year appears below:

Reference: 12-16

The division's turnover is closest to: a. b. c. d. a. 3.20 b. 17.54 c. 0.22 d. 3.91

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25.
(Points: 4) J Corporation has two divisions. Division A has a contribution margin of $79,300 and Division B has a contribution margin of $126,200. If total traceable fixed costs are $72,400 and total common fixed costs are $34,900, what is J Corporation's net operating income? a. b. a. $168,000 b. $170,600

c. d.

c. $133,100 d. $98,200