1 Student Name: _________________________________________ Foster School of Business Student Code of Conduct: By signing below you acknowledge that you are a part of a learning community at the Foster School of Business that is committed to the academic standards of honesty, respect, and integrity, and that you will adhere to these standards while completing this quiz. _____________________________ Student Signature Quiz Section: 1:30 2:3023 ACCTG 225 Quiz 5B – Chapters 6 (Class 2), 11, 12 (Class 1) – March 6, 2013 Student Name: _________________________________________ Score: _______/15 You have 25 minutes to complete this quiz. Show ALL work on these pages, credit may not be given for correct answers with no support. Attempt all questions. TRUE/FALSE (0.5 points each) T / F MULTIPLE CHOICE (1 point each) 5. Residual income is a better measure for performance evaluation of an investment center manager than return on investment because: A. the problems associated with measuring the asset base are eliminated. B. returns do not increase as assets are depreciated. C. only the gross book value of assets needs to be calculated. D. desirable investment decisions will not be rejected by divisions that already have a high ROI. 6. A common cost that should not be assigned to a particular product on a segmented income statement is: A. the product's advertising costs. B. direct materials costs. C. the salary of the corporation president. D. the product manager's salary. 1. Residual income equals average operating assets multiplied by the difference between the return on investment and the minimum required rate of return. T 2. Generally, a product line should be dropped when the fixed costs that can be avoided by dropping the product line are less than the contribution margin that will be lost. F 3. Fixed costs that are traceable to a segment may become common if the segment is divided into smaller units. T 4. The contribution margin is viewed as a better gauge of the long run profitability of a segment than the segment margin. F4 COMPUTATIONAL PROBLEMS 7. The Foster Division reports the following operating data but accidentally erased a few data points. Please fill in the question marks. (1 point each; 3 total) Year 1MarginNOI*Sales=20,000*250,000=8%Turnover 2.5Average operating assets $100,000Net operating income $20,000Stockholders' equity $125,000SalesAOA*Turnover=2.5*100,000=$250,000ROINOI/OA=20,000/100,000=0.25 8. The Gasson Company sells three products, Product A, Product B and Product C, and had sales of $800,000 during the month of June. The company's overall contribution margin ratio was 32% and fixed expenses totaled $210,000. Sales were: Product A, $150,000; Product B, $450,000; and Product C, $200,000. Traceable fixed costs were: Product A, $25,000; Product B, $60,000; and Product C, $35,000. The variable expenses of Product A were $86,500 and the variable expenses of Product B were $347,500. a. Net operating income for the company was (1 point): Total contribution margin = Overall CM ratio  Total sales = 0.32  $800,000 = $256,000 Net operating income = Total contribution margin - Total fixed expenses = $256,000 - $210,000 = $46,000 b. The contribution margin ratio for Product C was (2 points): Product C contribution margin = $200,000 - $110,000 = $90,000 Product C CM ratio = Product C contribution margin  Product C sales = $90,000  $200,000 = 0.45 c. The common fixed expense for Gasson Company for the month of June was (1 point): Total traceable fixed expenses = $25,000 + $60,000 + $35,000 = $120,000 Common fixed expenses = Total fixed expenses - Total traceable fixed expenses = $210,000 - $120,000 = $90,000 d. The product line segment margin for Product A for June was (1 point): Sales-VC=$150,000-$86,500=$63,500 CM-TF=$63,500-$25,000=$38,5006 9. The Cabinet Shoppe is considering the addition of a new line of kitchen cabinets to its current product lines. Expected cost and revenue data for the new cabinets are as follows: If the new cabinets are added, it is expected that the contribution margin of other product lines at the cabinet shop will drop by $20,000 per year.7 a. If the new cabinet product line is added next year, the increase in net operating income resulting from this decision would be: (1 point) b. What is the lowest selling price per unit that could be charged for the new cabinets and still make it economically desirable to add the new product line? (2 points) The selling price would have to cover all of the costs of $795,000. On a per unit basis, the cost is $159 per unit (= $795,000  5,000