ACCT 1398 Lecture 5: tito livio i

Multiple Choice Problems

Jamesway Corporation has two separate divisions that operate asprofit centers. The following information is available for the mostrecent year:

whitedivision grey division

sales -net $200.000 $400.000

salaryexpense $28.000 $48.000

cost of goodsold $100.000 $159.000

The White Division occupies 20,000 square feet in the plant. TheGrey Division occupies 30,000 square feet. Rent is an indirectexpense and is allocated based on square footage. Rent expense forthe year was $50,000.

1. Gross profit for the White and Grey Divisions is:

white grey

(a) $72.000 $193.000

(b) $172.000 $352.000

(c) $100.000 $241.000

(d) $52.000 $163.000

(e) $72.000 $163.000

A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E

2. Grey Division's departmental income is:
A. $163,000.
B. $211,000.
C. $241,000.
D. $ 52,000.
E. $173,000.

KBCS is a diversified company producing and distributing different products. Product AB division within the company handles a specific product and would like to earn a long-run rate of return of 25%. Product X division will charge its unit selling price as necessary to provide this return. The following data are available on the division and its products: Variable Cost per unit ₹ 300 Total annual fixed costs ₹ 14,00,000 Long run normal demand 20,000 units each year Average operating assets owned by the division ₹ 24,00,000 Required: (i) Compute the per unit selling price that will provide the desired rate of return (ii) Assume that actual sales fluctuate from 16000 units to 24000 units. Compute the margin, turnover and ROI that would be realised on sales at 16000 units, 20,000 units and 24000 units level of activity (use the selling price computed in part (i) for your computations.

EXERCISE 12-1 Identifying Relevant Costs [L012-1] A number of costs are listed below that may be relevant in decisions faced by the management of Svahn, AB, a Swedish manufacturer of sailing yachts: Case 1 Not Case 2 Not Relevant Relevant Punimen med en ramen en Item Relevant Relevant a. Sales revenue ........ b. Direct materials ........................ c. Direct labor .......... d. Variable manufacturing overhead ........ e. Depreciation-Model B100 machine ..... f. Book value-Model B100 machine ......... g. Disposal value-Model B100 machine h. Market value-Model B300 machine (cost) ... i. Fixed manufacturing overhead (general). i. Variable selling expense ........ k. Fixed selling expense ........ 1. General administrative overhead ...... Required: Copy the information above onto your answer sheet and place an X in the appropriate column to indicate whether each item is relevant or not relevant in the following situations. Requirement 1 relates to Case 1 above, and requirement 2 relates to Case 2. 1. The company chronically has no idle capacity and the old Model B100 machine is the com- pany's constraint. Management is considering purchasing a Model B300 machine to use in addition to the company's present Model B 100 machine. The old Model B100 machine will continue to be used to capacity as before, with the new Model B300 machine being used to expand production. This will increase the company's production and sales. The increase in volume will be large enough to require increases in fixed selling expenses and in general administrative overhead, but not in the fixed manufacturing overhead. The old Model B100 machine is not the company's constraint, but management is consider- ing replacing it with a new Model B300 machine because of the potential savings in direct materials with the new machine. The Model B100 machine would be sold. This change will have no effect on production or sales, other than some savings in direct materials costs due to less waste.