Highlight your answer in the multiple choice questions below. (Worth 2 pts. each

Question

Highlight your answer in the multiple choice questions below. (Worth 2 pts. each)

3. For a recent operating, the Bayside Division of Fairhaven Corporation had sales of $400,000, net operating income of $30,000 (cost of goods sold is $250,000 and operating expenses are $120,000), and average operating assets of $320,000. Several Bayside managers have developed a plan to reduce operating expenses by 10%. What is the impact of this proposed reduction on margin, turnover, and ROI?

a.         Margin will remain the same, turnover will increase, and ROI will increase.

b.         Margin will increase, turnover will remain the same, and ROI will increase.

c.         Margin will decrease, turnover will increase, and ROI will decrease.

d.         Margin will decrease, turnover will decrease, and ROI will decrease.

4.         The performance of a cost center is typically based on its:

a.         Sales value variance.

b.         ROI.

c.         Flexible budget variance.

d.         Static budget variance.

5.         If return on investment for a division is 15% and the company’s minimum required cost of capital is 18% then,

            a.         residual income for the division is negative.

            b.         residual income for the division is taken on a value between zero and positive one.

            c.         residual income cannot be computed.

            d.         residual income is positive.

6.         Which of the following is relevant to Amazon.com’s decision to accept a special order at a lower sale price from a large customer in China?

            a.         The cost of Amazon.com’s warehouses in the United States.

            b.         Amazon.com’s investment in its Web site.

            c.         The cost of shipping the order to the customer.

            d.         Founder Jeff Bezo’s story.

7.         In a drop or retain a segment decision, a company will find which of the following income statement formats most useful?

a.         A segmented income statement in the contribution margin format, which separates traceable fixed costs from common fixed costs.

            b.         A traditional income statement in the full costing format that is used for financial reporting.

c.         A segmented income statement in the full (traditional) costing format that is used for financial reporting.

            d.         Income statements are of no use in making this type of decision.

Explanation / Answer

Answer to the Multiple Choice Questions :

3 b. Margin will increase, turnover will remain the same and ROI will increase.

4 c. Flexible Budget Variance.

5 a. Residual Income for the divison is negative.

6 d. Founder Jeff Bezo's story.

7 a. A segmented income statement in the contribution margin format, which separates traceable fixed costs from   common fixed costs.

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