Acct 2301 Exam 3 Solutions(25 questions)

Acct 2301 Exam 3 Solutions

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Managerial Accounting
Acct 2301
Summer II 2008
Exam 3 - Solutions
Name: ‘
There are 25 questions on this exam. Select the best answer for each question and fill your answer in on
your scantron. Minor rounding (around $5) is acceptable for PV problems. Good Luck!
1. The St. Lois Division of Missouri Garage Doors, Inc. is currently achieving a 16 percent ROI. The
company’s target ROI is 10%. The division has the opportunity to invest in operating assets an
additional $600,000 at 13 percent, but is reluctant to do so because its ROI will fall to 15.5 percent.
The division’s present investment in operating assets is $3,000,000. What will happen to the
division’s residual income if the new investment is accepted?
$78,000 – ($600,000 * 10%) = $18,000
$78,000 = $600,000 * 13%
a. Increase by $18,000
b. Decrease by $180,000
c. Increase by $198,000
d. The division’s RI will not change.
e. None of the above
2. Standard Oil Company operates two divisions. The Houston Division has residual income of $22,500
and operating assets of $250,000. The company’s desired ROI is 15%. What is Houston Division’s
return on investment?
$22,500 = OI – ($250,000 * 15%)
OI = $60,000
ROI = $60,000 / $250,000 = 24%
a. 15%
b. 24%
c. 12%
d. 22%
e. There is not enough information available.
3. The Dallas Division of Texas Inc. as a return on investment of 20%. The Division generates sales of
$600,000 from $200,000 of operating assets. What is the division’s margin? (Round to two decimal
places.)
20% = OI / $200,000
OI = $40,000
Margin = $40,000 / $600,000 = 6.67%
a. 30.00%
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b. 20.22%
c. 10.50%
d. 6.67%
e. None of the above
4. Loftin Corporation’s balance sheet indicates that the company has $600,000 invested in operating
assets. During 2007, Loftin earned $96,000 of operating income and had a margin of 5%. What was
Loftin’s turnover for 2007?
5% = $96,000 / Sales
Sales = $1,920,000
Turnover = $1,920,000 / $600,000
3.2
a. 3.0
b. 16.4
c. 3.2
d. 6.25
e. None of the above
5. Which of the following would increase residual income?
a. Decrease in income
b. Decrease in investment
c. Increase in the required ROI
d. Decrease in sales
e. None of the above
6. Perfecto Products provided the following selected information about its consumer products division
for 2007:
Desired ROI
9%
Net Income
$360,000
Residual Income
$270,000
What is the company’s investment amount?
RI = OI – (OA * Desired ROI)
$270,000 = $360,000 – 9%X

a. $4,000,000
b. $3,000,000
c. $2,000,000
d. $1,000,000
e. None of the above
7. Tom is planning a vacation to Europe two years from now. He would like to have $20,000 saved for
the vacation. How much must Tom invest today at a rate of 8% in order to go to Europe? (Round to
the nearest dollar.)
$20,000 * 0.857339 = $17,147
a. $18,519
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