Question 1

Tadman Inc. reported the following results from last year's operations: $\begin{array}{lr}
\text { Sales } & \$, 400,000 \
\text { Variable expenses } & 5,120,000 \
\text { Contribution margin } & 3,280,000 \
\text { Fixed expenses } & 2,944,000 \
\text { Net operating income } & \$ \quad 336,000 \
\end{array}$ At the beginning of this year, the company has a $800,000 investment opportunity that involves sales of $2,800,000, fixed expenses of $756,000, and a contribution margin ratio of 30% of sales.
If the company pursues the investment opportunity and otherwise performs the same as last year, the combined margin for the entire company will be closest to:
A) 1.0%
B) 3.0%
C) 5.0%
D) 3.8%

Accepted Answer

The combined margin is calculated as the total net operating income divided by the total sales for both the existing operations and the new investment opportunity. From last year's operations, the net operating income is $336,000, and sales are $400,000. For the new investment, sales are $2,800,000, the contribution margin ratio is 30%, so the contribution margin is $2,800,000 * 30% = $840,000. The fixed expenses for the new investment are $756,000, so the net operating income from the new investment is $840,000 - $756,000 = $84,000. The total net operating income (existing operations + new investment) is $336,000 + $84,000 = $420,000. The total sales (existing operations + new investment) are $400,000 + $2,800,000 = $3,200,000. Therefore, the combined margin is $420,000 / $3,200,000 = 0.13125 or 13.125%, which is not among the provided options, indicating a potential mistake in the calculation or the interpretation of the options. Given the options and the context, recalculating or reassessing the provided information for accuracy is necessary. Upon reevaluation, it appears there was an error in the initial response. The correct approach to find the combined margin involves accurately calculating the total net operating income and total sales, then finding the percentage. However, the mistake in the initial calculation or interpretation of the options led to an incorrect conclusion. The correct calculation should closely align with the options provided, suggesting a need to correct the calculation or interpretation error.

Question 2

Worsell Inc. reported the following results from last year's operations:  The company's minimum required rate of return is 10%. Last year's residual income was closest to:
A) $440,000
B) $490,000
C) ($638,000)
D) ($60,000)

Accepted Answer

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Question 3

Verbeke Inc. reported the following results from last year's operations: $\begin{array}{lr}
\text { Sales } & \$, 300,000 \
\text { Variable expenses } & 3,890,000 \
\text { Contribution margin } & 2,410,000 \
\text { Fixed expenses } & 2,032,000\
\text { Net operating income }& \$  378,000 \
\text { Average operating assets }& \$ 3,000,000
\end{array}$ Last year's turnover was closest to:
A) 16.67
B) 0.06
C) 2.10
D) 0.48

Accepted Answer

Turnover is calculated as Sales divided by Average Operating Assets. Given Sales = $300,000 and Average Operating Assets = $3,000,000, the turnover is $300,000 / $3,000,000 = 0.1 or closest to 0.1, which is not directly an option. The provided data seems to have inconsistencies (e.g., Sales less than Variable Expenses yet a positive Contribution Margin), suggesting a potential error in the question setup. However, based on the standard formula for turnover, none of the provided options accurately reflect the correct calculation from the given data. The closest correct approach with the given options would be to consider the intended calculation might involve other figures, but with the provided numbers and standard definitions, a precise match to the options is not achievable. The selection of "C) 2.10" is identified as an error due to a misunderstanding in the calculation process.

Question 4

Braymiller Inc. has a $1,600,000 investment opportunity with the following characteristics: $\begin{array}{lc}
\text { Sales } & \$ 4,000,000 \
\text { Contribution margin ratio } & 30 \% \text { of sales } \
\text { Fixed expenses } & \$ 1,040,000
\end{array}$ The turnover for this investment opportunity is closest to:
A) 0.04
B) 0.40
C) 2.50
D) 25.00

Accepted Answer

The turnover is calculated as sales divided by the investment. Here, sales are $4,000,000 and the investment is $1,600,000. Thus, turnover = $4,000,000 / $1,600,000 = 2.5.

Question 5

Pankey Inc. has a $700,000 investment opportunity that would involve sales of $1,050,000, a contribution margin ratio of 40% of sales, and fixed expenses of $325,500. The company's minimum required rate of return is 18%. The residual income for this year's investment opportunity is closest to:
A) ($31,500)
B) $0
C) $94,500
D) $124,600

Accepted Answer

The answer of Pankey Inc. has a $700,000 investment opportunity...

Question 6

Salvey Inc. reported the following results from last year's operations:  The company's average operating assets were $3,000,000.
At the beginning of this year, the company has a $300,000 investment opportunity that involves sales of $480,000, fixed expenses of $100,800, and a contribution margin ratio of 30% of sales.
If the company pursues the investment opportunity and otherwise performs the same as last year, the combined ROI for the entire company will be closest to:
A) 16.6%
B) 1.3%
C) 18.2%
D) 15.3%

Accepted Answer

11eacbfc_c50e_30d0_8ffe_577e8dbcf03e_TB7552_00 Net operating income = $504,000 + $43,200 = $547,200
Average operating assets = $3,000,000 + $300,000 = $3,300,000
ROI = Net operating income ÷ Average operating assets = $547,200 ÷ $3,300,000 = 16.6%

Question 7

Lumsden Inc. has a $1,200,000 investment opportunity with the following characteristics:  The company's minimum required rate of return is 7%. The residual income for this year's investment opportunity is closest to:
A) $120,000
B) $36,000
C) $0
D) $84,000

Accepted Answer

The answer of Lumsden Inc. has a $1,200,000 investment opportunity...

Question 8

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?
A) $7,900
B) ($20,118)
C) $20,118
D) ($7,900)

Accepted Answer

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Question 9

Boespflug Inc. has a $1,000,000 investment opportunity that involves sales of $900,000, fixed expenses of $225,000, and a contribution margin ratio of 30% of sales. The margin for this investment opportunity is closest to:
A) 5.0%
B) 25.0%
C) 75.0%
D) 30.0%

Accepted Answer

11eacbfc_c50b_bfc1_8ffe_edab55e6cfe5_TB7552_00 Margin = Net operating income ÷ Sales = $45,000 ÷ $900,000 = 5.0%

Question 10

Canedo Inc. reported the following results from last year's operations: $\begin{array}{lrr}
\text { Sales } & \$ 9,600,000 \
\text { Variable expenses } & 7,170,000 \
\text { Contribution margin } & 2,430,000 \
\text { Fixed expenses } & 1,470,000 \
\text { Net operating income } & \$  960,000 \
\text { Average operating assets } & \$ \quad 4,000,000
\end{array}$ At the beginning of this year, the company has a $700,000 investment opportunity with the following characteristics:
$\begin{array}{lc}
\text { Sales } & \$ 2,310,000 \
\text { Contribution margin ratio } & 60 \% \text { of sales } \
\text { Fixed expenses } & \$ 1,201,200
\end{array}$ If the company pursues the investment opportunity and otherwise performs the same as last year, the combined turnover for the entire company will be closest to:
A) 2.98
B) 17.01
C) 2.53
D) 2.04

Accepted Answer

The answer of Canedo Inc. reported the following results from...

Question 11

Largo Company recorded for the past year sales of $750,000 and average operating assets of $375,000. What is the margin that Largo Company needed to earn in order to achieve an ROI of 15%?
A) 2.00%
B) 15.00%
C) 9.99%
D) 7.50%

Accepted Answer

Turnover = Sales ÷ Average operating assets
= $750,000 ÷ $375,000 = 2
ROI = Margin × Turnover
15% = Margin × 2
Margin = 15% ÷ 2 = 7.5%

Question 12

The following information relates to last year's operations at the Legumes Division of Gervani Corporation: $\begin{array}{lc}
\text { Minimum required rate of return } & 12 \% \
\text { Return on investment (ROI) } & 15 \% \
\text { Sales } & \$ 900,0000 \
\text { Turnover (on operating assets) } & 3 \text { times }
\end{array}$ What was the Legume Division's net operating income last year?
A) $108,000
B) $135,000
C) $36,000
D) $45,000

Accepted Answer

The answer of The following information relates to last year's...

Question 13

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) ($6,600)
B) $5,082
C) $6,600
D) ($5,082)

Accepted Answer

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Question 14

The following data has been provided for a company's most recent year of operations:  The residual income for the year was closest to:
A) $20,000
B) $3,000
C) $5,000
D) $15,000

Accepted Answer

ROI = Net operating income ÷ Average operating assets
0.20 = Net operating income ÷ $100,000
Net operating income = 0.20 × $100,000 = $20,000
Residual income = Net operating income − (Average operating assets × Minimum required rate of return)
= $20,000 − ($100,000 × 0.15) = $20,000 − $15,000 = $5,000

Question 15

Chavin Company had the following results during August: net operating income, $220,000; turnover, 5; and ROI 25%. Chavin Company's average operating assets were:
A) $880,000
B) $44,000
C) $55,000
D) $1,100,000

Accepted Answer

ROI = Net operating income ÷ Average operating assets
25% = $220,000 ÷ Average operating assets
Average operating assets = $220,000 ÷ 25% = $880,000

Question 16

Last year a company had sales of $600,000, a turnover of 3.6, and a return on investment of 18%. The company's net operating income for the year was:
A) $166,667
B) $108,000
C) $30,000
D) $15,000

Accepted Answer

ROI = Margin × Turnover
18% = Margin × 3.6
Margin = 18% ÷ 3.6 = 5%
Margin = Net operating income ÷ Sales
5% = Net operating income ÷ $600,000
Net operating income = 5% × $600,000 = $30,000

Question 17

Condren Inc. reported the following results from last year's operations: $\begin{array}{lr}
\text { Sales } & \$ 12,000,000 \
\text { Variable expenses } & 7,680,000 \
\text { Contribution margin } & 4,320,000 \
\text { Fixed expenses } & 3,720,000 \
\text { Net operating income } & \$ 600,000 \
\text { Average operating assets } & \$  6,000,000 \
\end{array}$ At the beginning of this year, the company has a $1,000,000 investment opportunity with the following characteristics:
$\begin{array}{lc}
\text { Sales } & \$ 1,100,000 \
\text { Contribution margin ratio } & 40 \% \text { of sales } \
\text { Fixed expenses } & \$ 363,000
\end{array}$ If the company pursues the investment opportunity and otherwise performs the same as last year, the combined ROI for the entire company will be closest to:
A) 1.1%
B) 8.6%
C) 9.7%
D) 11.3%

Accepted Answer

The combined ROI is calculated by dividing the new net operating income by the new average operating assets. The new net operating income is the sum of last year's net operating income and the net operating income from the new investment. The new average operating assets are the sum of last year's average operating assets and the new investment amount. The ROI is then calculated as (New Net Operating Income / New Average Operating Assets) * 100.

Question 18

Bungert Inc. reported the following results from last year's operations: $\begin{array}{lr}
\text { Sales } & \$ 15,200,000 \
\text { Variable expenses } & 9,470,000 \
\text { Contribution margin } & 5,730,000 \
\text { Fixed expenses } & 4,818,000 \
\text { Net operating income } & \$ \quad 912,000 \
\end{array}$ The company's minimum required rate of return is 12% and its average operating assets were $8,000,000. Last year's residual income was closest to:
A) $912,000
B) ($48,000)
C) $992,000
D) ($972,800)

Accepted Answer

Residual income is calculated as Net Operating Income - (Average Operating Assets * Minimum Required Rate of Return). Here, it is $912,000 - ($8,000,000 * 12%) = $912,000 - $960,000 = ($48,000).

Question 19

Tallon Inc. has a $1,200,000 investment opportunity that involves sales of $1,680,000, fixed expenses of $336,000, and a contribution margin ratio of 30% of sales. The turnover for this investment opportunity is closest to:
A) 1.40
B) 0.10
C) 10.00
D) 0.71

Accepted Answer

Turnover = Sales ÷ Average operating assets = $1,680,000 ÷ $1,200,000 = 1.40

Question 20

If net operating income is $70,000, average operating assets are $250,000, and the minimum required rate of return is 16%, what is the residual income?
A) $11,200
B) $40,000
C) $110,000
D) $30,000

Accepted Answer

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Quiz 11: Performance Measurement in Decentralized Organizations

Worsell Inc. reported the following results from last year's operations: The company's minimum required rate of return is 10%. Last year's residual income was closest to:

Pankey Inc. has a $700,000 investment opportunity that would involve sales of $1,050,000, a contribution margin ratio of 40% of sales, and fixed expenses of $325,500. The company's minimum required rate of return is 18%. The residual income for this year's investment opportunity is closest to:

Lumsden Inc. has a $1,200,000 investment opportunity with the following characteristics: The company's minimum required rate of return is 7%. The residual income for this year's investment opportunity is closest to:

Boespflug Inc. has a $1,000,000 investment opportunity that involves sales of $900,000, fixed expenses of $225,000, and a contribution margin ratio of 30% of sales. The margin for this investment opportunity is closest to:

Largo Company recorded for the past year sales of $750,000 and average operating assets of $375,000. What is the margin that Largo Company needed to earn in order to achieve an ROI of 15%?

The following data has been provided for a company's most recent year of operations: The residual income for the year was closest to:

Chavin Company had the following results during August: net operating income, $220,000; turnover, 5; and ROI 25%. Chavin Company's average operating assets were:

Last year a company had sales of $600,000, a turnover of 3.6, and a return on investment of 18%. The company's net operating income for the year was:

Tallon Inc. has a $1,200,000 investment opportunity that involves sales of $1,680,000, fixed expenses of $336,000, and a contribution margin ratio of 30% of sales. The turnover for this investment opportunity is closest to:

If net operating income is $70,000, average operating assets are $250,000, and the minimum required rate of return is 16%, what is the residual income?