Question

QUESTION 36

1. The current pretax income for Coretax is $40,000 (tax rate is 30%), with an average asset base of $120,000 and an expected return of 15 percent or higher. The ROI for Coretax would amount to:

   		66.7%
   		33.3%
   		23.3%
   		15%

2 points   

QUESTION 37

1. In order to avoid managerial conflicts of interest to reject favorable investment, which measure should be used to evaluate the performance of an investment center manager?

   		Residual income
   		The payback method
   		NPV
   		ROI

2 points   

QUESTION 38

1. Assume the following information for one segment of a company:

   Sales revenue	$2,600,000
   Variable manufacturing costs	200,000
   Fixed manufacturing costs	350,000
   Variable selling/administrative costs	120,000
   Fixed selling/administrative costs	80,000

   What is the product line's segment income?

   		$1,850,000
   		$2,050,000
   		$2,280,000
   		$1,930,000

2 points   

QUESTION 39

1. The Rubber Division of Morgan Company manufactures rubber moldings and sells them externally for $50. Its variable cost is $20 per unit, and its fixed cost per unit is $7. Morgan's president wants the Rubber Division to transfer 5,000 units to another company division at a price of $27. Assuming the Rubber Division has available capacity for 5,000 additional units, the economic rule would set transfer price as:

   		$7.
   		$20.
   		$27.
   		$50.

2 points   

QUESTION 40

1. A common size income statement analysis would show what figure for the following company:

   	2016	2015
   Net sales	$668,450	$641,712
   Cost of goods sold	$200,000	$224,000
   Gross margin	$468,450	$417,712
   Selling/administrative costs	$120,000	$125,000
   Operating income	$348,450	$292,712
   Income tax expense	$66,206	$55,615
   Net income	$282,244	$237,097

   		The change in gross margin is $50,738
   		2016 operating income (as a percent of net sales) is 52.1%
   		The percent change in net income is 19%
   		The 2016 change in operating income is $55,738

2 points   

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Answer 1

(As per Chegg policy only first mentioned question is required to be answered, however i have answered all the questions. Please give positive rating)

Question 36

ROI = 23.3%
Pretax Income	40000
Less: Tax @30%	12000
Net Income	28000
ROI = Net Income / Average Asset Base
ROI = $28,000/$120,000
ROI = 23.3%

Question 37 Net Present Value (NPV)

In order to avoid managerial conflicts of interest to reject favorable investment, which measure should be used to evaluate the performance of an investment center manager : Net Present Value

Question 38

Product line segment Income

$1,850,000

Sales revenue	$2,600,000
less: Variable manufacturing costs	200,000
Fixed manufacturing costs	350,000
Variable selling/administrative costs	120,000
Fixed selling/administrative costs	80,000
Net Income	$1,850,000

Question 39 $20

The economic rule would set transfer price as: $20

Economic Value is the variable cost of $20 per unit , since the company has enough capacity to produce 5000 units so there will be no loss of contribution.

Question 40 All the given options are correct as you can see from the table below

Yes	The change in gross margin is $50,738
Yes	2016 operating income (as a percent of net sales) is 52.1%
Yes	The percent change in net income is 19%
Yes	The 2016 change in operating income is $55,738

1.The change in gross margin is $50,738 (468,450 - 417,712)

2. 2016 operating income (as a percent of net sales) is 52.1% (55738/292712 x 100 )

3. The percent change in net income is 19% (45147/237097 x 100)

4. The 2016 change in operating income is $55,738 (348450-292712)

	2016	2015	Difference	% change
Net sales	$668,450	$641,712	$26,738	4.2%
Cost of goods sold	$200,000	$224,000	($24,000)	-10.7%
Gross margin	$468,450	$417,712	$50,738	12.1%
Selling/administrative costs	$120,000	$125,000	($5,000)	-4.0%
Operating income	$348,450	$292,712	$55,738	19.0%
Income tax expense	$66,206	$55,615	$10,591	19.0%
Net income	$282,244	$237,097	$45,147	19.0%