accounting-Operating data from Tindall Company for last year is as follows

Use the following to answer questions 1-2:

Operating data from Tindall Company for last year is as follows:

	Sales	$900,000
	Average Stockholders’ equity	$500,000
	Return on investment	12%
	Average operating assets (invested capital)	?
	Capital turnover	1.5
	Residual income	?
	Minimum required rate of return (imputed interest rate)	10%
	Net Income	?

1. The average operating assets (invested capital) was:
   1. $600,000
   2. $400,000
   3. $500,000
   4. $800,000

2. The sales margin used in ROI calculations was:

1. 1. 18%
   2. 8%
   3. 6.67%
   4. 15%

Use the following to answer question 3:

Jasper Corporation is organized into three separate divisions. The three divisional managers are evaluated at year-end, and bonuses are awarded based on ROI. Last year, Jasper Corporation produced a 12% return on investment.

The managers of Jasper’s Iowa Division recently studied an investment opportunity that might assist in the division future growth. Relevant data follows.

	Iowa Division	Investment Opportunity
Income	$12,800,000	$4,200,000
Invested Capital	$80,000,000	$30,000,000

3. What is the most likely reaction of Iowa’s management, given the structure allows Iowa a great deal of freedom and autonomy?

1. 1. Favor investment since it improves corporate ROI.
   2. Reject investment since it reduces corporate ROI.
   3. Favor investment since it improves division ROI.
   4. Reject investment since it reduces division ROI.
   5. Favor investment since it increases the investment base.

4. A factory that makes a part has significant idle capacity and has no alternate use for that capacity. The factory’s opportunity cost of making this part is equal to:

1. 1. the variable manufacturing cost per unit.
   2. zero.
   3. the semi variable cost per unit
   4. the total manufacturing cost per unit
   5. the fixed manufacturing cost per unit.

5. Assuming no excess capacity, if the lowest acceptable transfer price charged to the buying division is $90 (based on the general transfer price rule) and the lost contribution margin per unit on outside sales is $40, then the additional variable cost per unit for products transferred internally must be:

1. 1. $90
   2. $40
   3. $130
   4. $50

6. The Amalgamated Division reported a residual income of $200,000 for the year just ended. The division had $8,000,000 of invested capital and $1,000,000 of income. On the basis of this information, the imputed interest rate of return was:

1. 1. 2.5%
   2. 10%
   3. 12.5%
   4. 20%

7. A division’s return on investment may be improved by increasing (for each answer example, assume all other values stay constant):

1. 1. cost of goods sold and expenses.
   2. sales margin.
   3. administration expenses.
   4. capital investment.
   5. cost of capital.

8. ROI will directly indicate:

1. 1. the sales dollars generated per dollar of invested capital.
   2. the income generated per dollar of sales.
   3. how effectively a company used its invested capital.
   4. the income generated per dollar of current assets.
   5. the overall stability of a company’s earnings over the years.

9. Which of the following is the correct mathematical expression to derive a company’s capital turnover?

1. 1. Sales revenue ÷ invested capital.
   2. Contribution margin ÷ invested capital.
   3. Income ÷ invested capital.
   4. Invested capital ÷ sales revenue
   5. Invested capital ÷ income.
2. Bronx Corporation’s Gauge Division manufactures and sells product no. 24, which is used in refrigeration systems. Per-unit variable manufacturing and period costs (e.g., selling, shipping) amount to $20 and $5, respectively. The Gauge Division can sell this item to external customers for $36 or, alternatively, transfer the product to Bronx’s Refrigeration System Division. Refrigeration System is currently purchasing a similar unit from an outside firm for $33. Assume use of the general transfer-pricing rule.

Required: If Gauge has no excess capacity and was able to reduce the variable cost in internal transfer by $4 per unit, what transfer price would the Gauge Division be willing to set?

1. 1. $33
   2. $25
   3. $36
   4. $32
   5. $31

11. Which of the following is used in the calculation of both return on investment and residual income?

1. 1. Total stockholders’ equity.
   2. Retained earnings.
   3. Invested capital.
   4. Total liabilities.
   5. The cost of capital.