ACCT504 exam

Question 1.1.(TCO H) Ginger Corporation has two major business segments—Herbs and Spices. Data concerning those segments for June appear below.

Sales revenues, Herbs $475,000
Variable expenses, Herbs $262,500
Traceable fixed expenses, Herbs $78,000
Sales revenues, Spices $450,000
Variable expenses, Spices $225,000
Traceable fixed expenses, Spices $65,000

Common fixed expenses totaled $195,000 and were allocated as follows: $85,000 to the Herbs business segment and $110,000 to the Spices business segment.

Required:

Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts.(Points : 15)

Question 2.2.(TCO G) Ash Wares is a division of a major corporation. The following data are for the latest year of operations.

Required:
i. What is the division's margin?
ii. What is the division's turnover?
iii. What is the division's ROI?
iv. What is the division's residual income?(Points : 15)

Question 3.3.(TCO H) The management of Branner Corporation is considering dropping product S35K. Data from the company's accounting system appear below.

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $100,000 of the fixed manufacturing expenses and $75,000 of the fixed selling and administrative expenses are avoidable if product S35K is discontinued.

Required:

i. According to the company's accounting system, what is the net operating income earned by product S35K? Show your work!
ii. What would be the effect on the company's overall net operating income of dropping product S35K? Should the product be dropped? Show your work!(Points : 15)

Question 4.4.(TCO H) Rosnek Corporation makes 25,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows.

An outside supplier has offered to sell the company all of these parts it needs for $45.00 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $100,000 per year.

If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $4.75 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.

Required:

i. How much of the unit product cost of $44.25 is relevant in the decision of whether to make or buy the part?
ii. Should Rosnek Corporation make or buy the part? (Provide numerical support for your answer)(Points : 15)

Question 5.5.(TCO H) Palmer Company manufactures and sells trophies for winners of athletic and other events. Its manufacturing plant has the capacity to produce 22,000 trophies each month; current monthly production is 20,900 trophies. The company normally charges $62 per trophy. Cost data for the current level of production are shown below.

The company has just received a special one-time order for 800 trophies at $31 each. For this particular order, no variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs.

Required:

Should the company accept this special order? Provide numerical support for your decision.(Points : 15)