Question 1

Bungert Inc.reported the following results from last year's operations:
 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

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Question 2

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 3

Tadman Inc.reported the following results from last year's operations:
 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

11ea7761_1660_14d1_81a5_8b6d1e1a6653_TB2580_00 Net operating income = $336,000 + $84,000 = $420,000
Sales = $8,400,000 + $2,800,000 = $11,200,000
Margin = Net operating income ÷ Sales = $420,000 ÷ $11,200,000 = 3.8%

Question 4

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 5

Braymiller Inc.has a $1,600,000 investment opportunity with the following characteristics:
 The turnover for this investment opportunity is closest to:
A) 0.04
B) 0.40
C) 2.50
D) 25.00

Accepted Answer

Turnover = Sales ÷ Average operating assets = $4,000,000 ÷ $1,600,000 = 2.50

Question 6

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 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

11ea7761_1663_e571_81a5_5bbb1f7aa942_TB2580_00 11ea7761_1664_0c82_81a5_0bee82c41f58_TB2580_00

Question 8

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

11ea7761_1661_4d57_81a5_93f9d3c299a8_TB2580_00 Margin = Net operating income ÷ Sales = $45,000 ÷ $900,000 = 5.0%

Question 9

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 10

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 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:
 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

ROI = Margin × Turnover
15% = Margin × 3
Margin = 15% ÷ 3 = 5%
Margin = Net operating income ÷ Sales
5% = Net operating income ÷ $900,000
Net operating income = 5% × $900,000 = $45,000

Question 13

Canedo Inc.reported the following results from last year's operations:
 At the beginning of this year,the company has a $700,000 investment opportunity with the following characteristics:
 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

Sales = $9,600,000 + $2,310,000 = $11,910,000
Average operating assets = $4,000,000 + $700,000 = $4,700,000
Turnover = Sales ÷ Average operating assets = $11,910,000 ÷ $4,700,000 = 2.53

Question 14

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

11ea7761_1664_81b6_81a5_d3856e423a82_TB2580_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 15

Verbeke Inc.reported the following results from last year's operations:
 Last year's turnover was closest to:
A) 16.67
B) 0.06
C) 2.10
D) 0.48

Accepted Answer

Turnover = Sales ÷ Average operating assets = $6,300,000 ÷ $3,000,000 = 2.10

Question 16

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

11ea7761_1664_cfd7_81a5_1f85cdfd5f7b_TB2580_00

Question 17

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

11ea7761_1664_5aa4_81a5_a163c34471c9_TB2580_00

Question 18

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 19

Condren Inc.reported the following results from last year's operations:
 At the beginning of this year,the company has a $1,000,000 investment opportunity with the following characteristics:
 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

11ea7761_1660_ff36_81a5_1f56f0f1a26d_TB2580_00 Net operating income = $600,000 + $77,000 = $677,000
Average operating assets = $6,000,000 + $1,000,000 = $7,000,000
ROI = Net operating income ÷ Average operating assets = $677,000 ÷ $7,000,000 = 9.7%

Question 20

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

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Quiz 11: Performance Measurement in Decentralized Organizations

Bungert Inc.reported the following results from last year's operations: 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:

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:

Braymiller Inc.has a $1,600,000 investment opportunity with the following characteristics: The turnover for this investment opportunity is closest to:

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

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:

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:

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 information relates to last year's operations at the Legumes Division of Gervani Corporation: What was the Legume Division's net operating income last year?

Verbeke Inc.reported the following results from last year's operations: Last year's turnover was 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?

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: