Final Exam Review

The Scranton branch of Dunder Mifflin currently reports and operating income of $40,000, average assets of $200,000, and sales of $400,000. They are required to earn a minimum return of 10% on their assets. What is Scranton’s ROI?

• 20%

• 30%

• 25%

• 22%

The Scranton branch of Dunder Mifflin currently reports and operating income of $40,000, average assets of $200,000, and sales of $400,000. They are required to earn a minimum return of 10% on their assets. What is Scranton’s residual income?

• 20,000

• 30,000

• 40,000

• 50,000

The company wants Michael to buy many new copy machines since their current one is very old. The copy machines cost $100,000 and will provide operating income of $20,000. What is the rate of return (ROI) of the purchase of the copy machine by itself? What would be the impact on the branch’s residual income if Michael bought all of the copy machines? (Use previous answers)

• 30,000

• 20,000

• 40,000

• 50,000

A company produces chemicals that it sells to companies that produce cleaning products. In a joint process, 30,000 gallons of Chemical A are processed into 22,000 gallons of Chemical B and 8,000 gallons of Chemical C. The cost of this joint process is $45,000. The 8,000 gallons of Chemical C can be sold for $40,000 or can be processed further into Chemical D. If the company decides to process Chemical C into Chemical D, they will lose 15% of it in the process. The sales value of Chemical D is $11 per gallon, and the additional processing cost is $37,500. If the company decides to process Chemical C into Chemical D, what would be the effect on profitability?

• -2,700

• -1,300

• 1,000

• 2,300

A company produces products A, B, C, and D, each of which can be sold at an intermediate phase of production or can be processed further to make a more refined product. Information about the company’s products follows:

Which products should be processed further?

• A

• B

• C

• D

Jaguar uses 20,000 units of Part X each year. Information about Jaguar’s cost of make Part X is provided below. If Jaguar decides to buy Part X from Dolphin, then half of the fixed overhead could be eliminated and Jaguar could rent out the factory space currently being used to produce Part X for $15,000 per year. Dolphin has offered to sell Jaguar Part X for $10.50 per unit. By how much would profitability increase or decrease if Jaguar buys Part X from Dolphin?

• 5,000

• 2,000

• -2,000

• -5,000

Anderson Corporation is currently buying Part M from an outside supplier for $10 per part. Anderson uses 50,000 units of Part M in production each year. If Anderson were to make Part M instead, it would incur direct materials cost per part of $2.50, direct labor cost per part of $3.50, variable manufacturing overhead per part of $1.00, and would have to hire a supervisor to oversee the production process at an annual salary of $90,000. Currently, the area in the factory that would be used to make the part is being rented and generates annual rental income of $40,000. What would be the effect on profitability if Anderson chose to make Part M instead of buying it from an outside supplier?

• 20,000

• 30,000

• 40,000

• 50,000

A company produces 3 products. The company’s fixed costs amount to $500,000 per month. The company has 110,000 machine hours available during the month. The following other information is provided:

What is its optimal production decision?

• 40,000 units of product 1

• 12,000 units of product 2

• 50,000 units of product 3

• 15,000 units of product 2 and 3

A company currently has stores at two locations: Atlantic Beach and Ponte Vedra. The following information is presented about each segment.

As shown above, the company’s total operating income amounted to $112,000. The company allocates common fixed costs on the basis of sales.

What would be the effect on profitability if the company eliminated the Atlantic Beach location?

• -10,000

• 10,000

• 15,000

• -15,000

The company allocates common fixed costs equally to each segment. What would have been the effect on operating income if the company had eliminated the Orlando location at the beginning of the year?

• 50,000

• -50,000

• 30,000

• -30,000