Costs and Net Operating Income

1204 Words Feb 1st, 2012 5 Pages
Week 6 : Segment Reporting and Relevant Costs for Decisions - Quiz

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1. (TCO D) Which of the following performance measures will decrease if there is an increase in the accounts receivable?

(Points : 5) Choice A Choice B Choice C Choice D

2. (TCO D) Delmar Corporation is considering the use of residual income as a measure of the performance of its divisions. What major disadvantage of this method should the company consider before deciding to institute it? (Points : 5) this method does not take into account differences in the size of divisions. investments may be adopted that will decrease the overall return on investment.
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$202,000 0 202,000
CM $278,000 0 (278,000)
Fix Exp FME 158,000 72,000 $86,000 FSA 130,000 63,000 $67,000
Total Fix Exp 288,000 135,000 153,000
Net income (10,000) (135,000) (125,000)

According to the company 's accounting system, the product 's net operating loss is 10,000

B.Net operating income would decline by $125,000 if product E28I were dropped. Therefore, the product should not be dropped.

4. (TCO D) Rosiek Corporation uses part A55 in one of its products. The company 's Accounting Department reports the following costs of producing the 4,000 units of the part that are needed every year.

An outside supplier has offered to make the part and sell it to the company for $32.30 each. If this offer is accepted, the supervisor 's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier 's offer were accepted, only $4,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part A55 could be used to make more of one of the company 's other products, generating an
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