Individual Homework Assignment #1
ACCY 302 Fall 2004
For problems 1 through 4. The following information pertains to the three divisions of Marlow Company.
Division X Division Y Division Z
Sales ? ? $1,250,000
Operating Income $ 36,000 $25,000 75,000
Average operating assets 300,000 ? ?
Return on investment ? 20% 15%
Operating income margin 0.10 0.05 ?
Operating asset turnover 1.50 ? ?
Target ROI 15% 12% 10%
1. What is the margin for Division Z?
2. What are the sales for Division Y?
3. What is the residual income for Division X?
4. What is the return on investment for Division X?
5. If the operating asset turnover ratio of a firm increased by 30 percent and the margin increased by 20 percent, the divisional ROI would increase/decrease by what amount?
6. Brewster Company manufactures elderberry wine. Last year Brewster earned an operating profit of $210,000 after taxes. Capital employed equaled $2 million. Brewster is 50% equity and 50% ten-year bonds paying 6% interest. Brewster’s marginal tax rate is 35%. The company is considered a fairly risky investment and probably commands a 12 point premium above the 6% rate on long-term treasury bonds. REQUIRED: Calculate the EVA.
For problems 7 and 8. Whizbang Company creates, produces, and markets video games. Most of the games involve some sort of brain teaser. Leonard Polson, the owner of Whizbang, is convinced that his employees must have strong analytical and problem-solving skills. Before any employee is hired, s/he must successfully solve a puzzle of some sort. The puzzle always relates to the employee’s area of expertise. You are applying for a job as an entry-level accountant. The controller of the firm wishes to test your knowledge of basic cost terms and concepts and, at the same time, evaluate your analytical skills. The controller has gathered information (presented below) for one of Whizbang’s plants for the previous year.
- Conversion cost was $360,000 and was three times prime cost.
- Direct materials used in production equaled $100,000.
- Cost of goods manufactured was $415,000.
- BWIP is one-half the cost of EWIP.
- There are no beginning or ending inventories for raw materials.
- CGS was 90 percent of CGM.
- Beginning FG invy. was $10,000.
REQUIRED:
7. Prepare a statement of CGM for the previous year.
8. Prepare a statement of CGS for the previous year.
For problems 9 and 10. Iolanni Company produced 2,400 teakwood screens during the past year. These screens sell for $350 each. Iolanni had 112 screens in FG inventory at the beginning of the year. At the end of the year, there were 150 screens in FG inventory. Iolanni’s accounting records provide the following information:
Purchases of raw materials $190,000
Raw material, inventory, 1/1 25,500
Raw material, inventory, 12/31 31,000
Direct labor 144,000
Indirect labor 38,610
Rent, factory bldg. 24,000
Depreciation, factory bldg. 17,000
Utilities, factory 7,900
Salary, sales supervisor 55,000
Commissions, salespersons 38,000
General administration 59,830
WIP, 1/1 6,010
WIP, 12/31 9,220
FG inventory, 1/1 45,000
FG inventory, 12/31 48,150
REQUIRED:
9. Compute the cost of producing one screen last year.
10. Compute operating income for last year.