管理会计习题及答案

Ⅰ. Choose the best answer for each of the following. Only one answer is correct. 1. Which of the following is the objective of management accounting System?

P4 ( D )

A. To provide information for costing.

B. To provide information for planning, controlling, evaluation, and continuous improvement．

C. To provide information for decision making． D. All of the above．

2. Any difference between absorption-costing income and variable-costing income is due to the differing treatment of P458 ( C ) A. selling and administrative expense. B. overhead. C. fixed overhead. D. variable overhead.

3. The cost of flexible resources is ( A ) A. variable cost.

B. a committed fixed cost. C. discretionary fixed cost. D. a period expenses.

4．Which of the following is a production (or unit-level) driver? ( D ) A. Direct labor hours. B. Direct materials. C. Direct machine hours. D. All of the above.

5． If investigation revealed that the unfavorable materials usage variance is the result of the lower-quality materials, who should be responsible for it? ( B ) A. the production manager. B. the purchasing department. C. maintenance manager. D. personnel department.

6．If the variable cost per unit goes up,

1

Contribution margin Break-even point ( C ) A. increases increases B. decreases decreases

C. decreases increases D. increases remains unchanged

7. The major differences between functional and activity-based budgeting are found within

P230 ( B )

A. the direct materials and direct labor categories.

B. the overhead and selling and administration expenses categories. C. the direct materials and the overhead categories. D. the direct labor and the overhead categories.

8. Which of the following is not an advantage of the use of ROI? ( B ) P399 A. It encourages managers to focus on the relationship among sales, expenses, and investment, as should be the case for a manager of an investment center. B. It encourages managers to focus on the profitability of the overall firm. C. It encourages managers to focus on cost efficiency.

D. It encourages managers to focus on operating assets efficiency.

9．If there is a perfectly competitive outside market for the transferred product, the correct transfer price is ( C ) A. the negotiated transfer price. B. the cost-based transfer price. C. the market price. D. All of the above.

10. The cost assignment approach that assigns the costs of direct materials, direct labor, and overhead to products using quantity and price standards is called ( C ) P250 A. actual costing. B. normal costing. C. standard costing. D. target costing.

11. Mutually exclusive capital budgeting projects are those that ( D ) P553 A. if accepted will produce a positive net present value.

2

B. if accepted will produce a positive payback period.

C. if accepted or reject do not affect the cash flows of other projects. D. if accepted precludes the acceptance of all other competing projects. 12. To record cost variances, we can follow a general rule: （D ）P268 A. all inventories are carried at standard cost.

B. actual costs are never entered into an inventory account.

C. unfavorable variances are always debits, and favorable variances are always credits. D. All of the above.

13. Which of the following organizations need management accounting information?

( D )

A. manufacturing organizations B. health care C. legal service D. all of the above

14. Which of the following is an example of batch-level activities? ( C ) A. Direct labor activity B. Plant depreciation C. setup activity D. Marketing a product

15. Which of the following is an example of relevant cost? ( C ) A. Sunk cost.

B. Allocations of common fixed costs. C. opportunity cost. D. None of the above.

16. What “product cost” means depends on the managerial objective being served. If the managerial objective is external financial reporting, product cost means ( A ) P40 A. Production cost. B. Operating product cost. C. Marketing cost.

D. Value-chain product cost.

17．Which budget is the basis for all of the other operating budgets and most of the

3

financial budgets? ( A ) A. The sales budget B. The production budget

C. The direct materials purchases budget D. The cash budget

18. A cost that, in total, varies in direct proportion to changes in activity output is a ( B ) A. fixed cost B. variable cost C. mixed cost D. step cost

19. One reason that firms may decide to decentralize is to ( D ) A. train and motivate managers

B. encourage competition among divisions

C. permit upper management to focus on strategic issues D. all of the above

20. Which of the following is the part of financial budget? ( A ) P219 A. budgeted balance sheet B. cost of goods sold budget

C. ending finished goods inventory budget D. selling and administrative budget

21. The potential sources of quantitative standards includes ( D ) A. Historical experience B. Engineering studies

C. Input from operating personnel D. All of the above

22. If the contribution margin per unit is $7 and the break-even point is 10,000 units, how much profit will a firm make if 15,000 units are sold? ( B ) A. $0 B. $35,000 C. $70,000 D. $105,000

4

23. Flexible budgets are sometimes referred to as ( A ) A. variable budgets. B. budgeted balance sheet. C. cash budget. D. continuous budgets.

24. The current focus of management accounting can best be described as （ B ）P9 A. lacking a customer orientation.

B. having emphasis on activity-based costing and process value analysis.

C. a system that achieves relevance by making financial accounting information more useful to internal users.

D. having emphasis on assigning manufacturing costs to products so that inventory cost can be reported to external users.

25. Which of the following statement is true? ( A ) A. In the long run, all costs are variable. B. In the long run, all costs are fixed.

C. Variable costs vary with drivers that are correlated with the number of units produced. D. None of the above.

26. To reduce the number of overhead rates required and streamline the process, activities can be grouped into homogeneous sets based on similar characteristics: ( D ) A. they are logically related.

B. they have the same consumption ratios for all products. C. they vary with the number of units produced. D. Both A and B.

27．The usual financial budgets prepared are: ( D ) A. The cash budget.

B. The budgeted balance sheet. C. The budget for capital expenditures. D. All of the above.

28．If the actual overhead is greater than the applied overhead, the variance is called (B) A. overhead variance. P95 B. underapplied overhead.

5

C. overapplied overhead. D. standard overhead.

29．If there is a decrease in inventory from the beginning of the period to the end of the period ,absorption-costing income will be P458 （B） A. greater than variable-costing income. B. less than variable-costing income. C. equal to variable-costing income. D. twice as large as variable-costing income.

30. Which of the following impairs the ability of unit-based plantwide and departmental rates to assign overhead costs accurately: P98 ( C ) A. The proportion of nonunit-related overhead costs to total overhead costs is large. B. The degree of product diversity is great. C. Both A and B. D. None of the above.

31. Which of the following is an advantage of the high-low method？ ( A ) A. It allows a manager to get a quick fix on a cost relationship using only two data point. B. It enables the analyst to determine whether or not the data are linear. C. It gives goodness-of-fit measures.

D. It allows the choice of the more representative points.

32. The activity-based cost management system can best be described as ( D ) A. It uses both financial and nonfinancial measures of performance. B. It is tracing-intensive.

C. It focuses on managing activities. D. All of the above.

33．Fixed costs common to two or more plants within a division ( A ) A. are shown as a common cost for the division.

B. are divided among the plants in accordance with relative sales.

C. are added to prime cost and subtracted from sales to yield contribution margin. D. are divided among the plants in accordance with relative amount of manufacturing cost. 34. The way, that assigns actual costs of direct materials and direct labor to products, however, a predetermined overhead rate is used to assigned manufacturing overhead to products ,is

6

called P250 ( B) A. actual costing. B. normal costing. C. standard costing. D. activity-based costing.

35. When functional-based costing is used, if the overhead variance is relatively small, at the end of year P95 ( A ) A. Underapplied overhead is added to cost of goods sold. B. Underapplied overhead is subtracted from cost of goods sold C. overapplied overhead is added to cost of goods sold.

D. underapplied or overapplied overhead may be treated as an adjustment to inventory. 36. To build an activity-based budget, some steps are needed P230 ( D ) A. identifies activities.

B. estimates demands for activity output.

C. assesses the cost of resources needed to support the activity output demanded. D. All of the above.

37. In the cost-volume-profit graph, P497 ( C ) A. the break-even point is found where the total revenue curve crosses the x-axis. B. the area of loss cannot be determined from this graph. C. the area of profit is to the right of the break-even point. D. the area of profit is to the left of the break-even point.

38Capital investment decisions involving automated technology ( D ) A. are the same as any other long-term investment decisions. B. should use both financial and nonfinancial criteria.

C. pay more attention to inputs used in discounted cash-flow analysis. D. Both B and C.

39．Which of following is not the characteristic of management accounting? ( B ) A. It focuses on providing information for internal users. B. It must follow externally imposed rules.

C. It produces financial and nonfinancial information. D. It provides very detailed information for managers.

7

40．Which of following is an advantage of activity-based management accounting?(D )

A. It improves product costing accuracy. B. It improves decision making.

C. It enhances strategic planning, and better ability to manage activities. D. All of the above.

41. Which of following is the oldest and most well-known certification in accounting?(B )

A. The Certificate in Management Accounting. B. The Certificate in Public Accounting.

C. The Certificate in Internal Auditing. D. None of the above.

42. Which of following is not the characteristic of activity-based management accounting

system? （C） A. It focuses on managing activities.

B. It emphasizes the maximization of systemwide performance.

C. It assigns resource costs to functional units and then to products. D. It uses of both financial and nonfinancial measures of performance.

43． Assume that a company has a fixed overhead rate of $8 per unit produced. During the year, the company produced 10,000 units and sold 8,000. What is the difference income generated according to absorption costing versus variable costing? （B） A. Absorption-costing net income is $16,000 less than variable-costing net income. B. Absorption-costing net income is $16,000 higher than variable-costing net income. C. Absorption-costing net income is $8,000 higher than variable-costing net income. D. Absorption-costing net income equals variable-costing net income.

Ⅱ. Fill in the blanks:

1. Transfer prices are prices charged for goods transferred between two divisions of the same firm. The output of the selling division is used as input of the buying division. 2. An opportunity cost is the benefit given up when one alternative is chosen over another.

3. Unit-level activities are those performed each time a unit is produced. For example, power is used each time a unit is produced. P109

4. The master budget is a comprehensive financial plan consisting of various individual

8

budgets. P212

5. The break-even point is the point where total revenues equal total expenses, the point where profit equals zero.

6. Target costing determines the cost of a product or service based on the price (target price) that customers are willing to pay. The marketing department determines what characteristics and price for the product are acceptable to customers, then engineers design and develop the product so that cost and profit can be covered by that price. P536 7. The payback period is the time required for a firm to recover its original investment. 8. Responsibility accounting is a system that measures the results of each responsibility center according to the information managers needs to operate their center. P394 9. The internal rate of return is defined as the interest rate that sets the present value of a project’s cash inflows equal to the present value of the project’s cost (the point where NPV = 0). P559

10. Profit center is a responsibility center in which a manager is responsible for both revenues and costs. P394

11. Operating leverage is the use of fixed costs to extract higher percentage changes in profits as sales activity changes.

12. The profit contribution each segment makes toward covering a firm’s common fixed costs is called the __segment margin_____. P469

13. Activity drivers are divided into two general categories: __unit-level____ and nonunit-level drivers.

14. Cost behavior is the way in which a cost changes in relation to changes in activity usage. By cost behavior, all costs of the company are classified into one of the three categories: __fixed costs___, variable costs, and mixed costs.

15. There are three methods of assigning costs to cost objects: direct tracing, driver tracing, and allocation. Of the three methods, __direct tracing___ is the most accurate.

16. The goods should be transferred internally whenever the opportunity cost (minimum price) of the selling division is _less____ than the opportunity cost (maximum price) of the buying division.

17. If the variances are not material in amount, at the end of year, the variances for

9

materials and labor are usually closed to cost of goods sold

18. A master budget can be divided into __operating____ and financial budgets. 19. If the amount of fixed overhead in inventory increases, then absorption-costing income is ______greater___ than variable-costing income by the amount of the net increase.

20. To meet external reporting requirements, costs must be classified according to __absorption costing____________. 21. The _Certificate in Public Accounting___ is the oldest and most well-known certification in accounting.

22. Three methods generally are used for setting transfer prices; they are market-based, negotiated, and cost-based. If a perfectly competitive market exists for the intermediate product, _then market-based price__ is the best transfer price.

23. The __sales_______ budget is the basis for all of the other operating budgets and most of the financial budgets.

24. The unit product cost under absorption-costing is always __higher_____ than the unit product cost under variable-costing.

25. There are three formal methods of decomposing mixed costs: the __high-low method__, the scatterplot method, and the method of least squares. P67

26. When activity-based costing is applied to cost-volume-profit analysis, fixed costs include batch-level costs , product-level costs, and facility-level costs. P111 27. The markup is a percentage applied to the based cost; it includes desired profit and any cost not included in the based cost.

28. Cost behavior is the general term for describing whether costs change as output changes. 29. A continuous budget is a moving twelve-month budget. As a month expires in the budget, an additional month is added so that the company always has a twelve-month plan on hand. P212

30. The margin of safety is defined as the difference between sales (actual or expected) and the break-even volume.

31. Flexible resources are resources that are acquired from outside sources, and the organization is free to buy only the quantity of the resource needed. P62

32.Economic value added is after-tax operating profit minus the total annual cost of

10

capital.

Ⅲ. Key terms explanation

1、 Activity-based management: It is a systemwide, integrated approach that focuses management’s attention on activities with the objective of improving customer value and the resulting profit. 2、 Internal value chain: It is the set of activities required to design, develop, produce, market, and deliver products and services to customers.

3、 Opportunity cost: It is the benefit given up or sacrificed when one alternative is chosen over another.

4、 Batch-level activities: Batch-level activities are those performed each time a batch of goods is produced.

5、 Master budget: The mater budget is the comprehensive financial plan for the organizations as a whole.

6、 Continuous budget: A continuous budget is a moving 12-month budget. 7、 Flexible budget: The budget that enables a firm to compute expected costs for a range of activity levels is called a flexible budget. 8、 Relevant costs: Relevant costs are future costs that differ across alternatives.

9、 Segment margin: The profit contribution each segment makes toward covering a firm’s common fixed costs is called a segment margin. 10、Operating leverage: Operating leverage is the use of fixed costs to extract higher percentage changes in profits as sales activity changes.

11、Transfer prices: The value of the transferred good is revenue to the selling division and cost to the buying division, this value, or internal price, is called the transfer price.

12、Responsibility accounting：Responsibility accounting is a system that measures the result of each responsibility center according to the information managers need to operate their canters.

13、Flexible resources: Flexible resources are supplied as used and needed, they are acquired from outside sources ,where the terms

11

of acquisition do not require any long-term commitment for any given amount of the resource.

14、Margin of safety: The margin of safety is the units sold or expected to be sold or the revenue earned or expected to be earned above the break-even point. Ⅳ. Question

1. 有哪几种类型的作业？分别举例说明。

（1）单位水准作业，每生产单位产品便相应执行一次的作业，如对产品加工所从事的作业

（2）批量水准作业，每生产一批产品时便相应执行一次的作业，其成本随批数的变化而变化，但对每批产品的产量而言，又是固定的，如对每批产品的机器设备、订单处理。

（3）产品水准作业，公司内借以维持多种产品的生产而需执行的作业，如对产品编制材料清单、测试线路。

（4）设备水准作业，借以维持企业的一般制造过程的作业。该类作业在某种水平上有益于整个企业，但并不针对任何具体产品，如厂部管理作业。

2．什么是总预算？有何作用？

总预算（master budget）是企业整体的财务计划，通常预算期为1年，与公司的财务年度保持一致。 作用：为改善决策提供有关资源信息 为企业业绩评价提供标准 改善企业内部沟通 协调

3.什么是弹性预算？弹性预算有何作用？

弹性预算(flexible budgets):是企业能够计算一定作业范围内的预计成本的预算称为弹性预算(PP225,P6,L1~L2).

弹性预算可以帮助经理们编制预计作业水平下的预算,这类预算使得经理们能够了解一定作业范围内的预计结果,从而有助于他们解决不确定性问题.经理们可用这种预算来分析各种似是而非的方案. 弹性预算是实际作业水平的预算.这类预算可用于在事后计算实际作业水平下应该发生的成本,然后与实际成本进行比较,从而对业绩进行评价.

4.简述理想预算系统的特征。

理想的预算制度既能实现完全的目标一致,又能够激励经理人员按照符合道德的方式去实现组织的目标，特征:对业绩的频繁反馈;货币性与非货币性奖励;参与式预算法;现实标准;成本可控性;对业绩的多重计量。

5.投资报酬率指标评价投资中心业绩有何优缺点？

12

三个优点：

1.促使经理人员关注销售、费用、投资之间的关系； 2.促使经理人员关成本效率；

3.促使经理人员关注营业资产的使用效率。（PP399,P4） 过分强调投资报酬率会促使短期行为的产生。缺点： 1.会导致只关心分部的盈利而不顾公司整体盈利的行为； 2.会导致经理只顾眼前利益而牺牲长远利益。（PP399,P7）

6.什么是内部转移价格？有哪几种类型的内部转移价格？

（在企业内部）转移产品的价值或内部交易价格就称为转移价格。 市场价格 协商价格 基于成本的价格

7.如何用机会成本法指导内部转移价格的制定？

在拟定转移价格方面的时，必须同时考虑销售方分部和购买方分部。机会成本法（opportunity cost approach）通过确认销售方愿意接受的最低价格和购买方愿意接受的最高价格来满足双方的要求。最低价格和最高价格相当于内部转移的机会成本。具体定义如下：最低价格（minimum transfer price）：指的是这样一种转移价格，若销售方分部将产品以该价格销售给其它分部而不将产品销售给外部单位，其利益不会受损；最高价格（maximum transfer price）：指的是这样一种转移价格，若购买方分部将产品以该价格向其它分部购入产品而不向外部单位购入产品，其利益不会受损。

在发生内部转移时，机会成本法能给分部提供指导。特别要指出的是，只要销售方的机会成本（最低价格）低于购买方的机

13

会成本（最高价格），就应该进行产品的内部转移。

8.简要说明变动成本法与吸收成本法在收益确定方面的区别与联系。

变动成本计算法与吸收成本计算法的区别在于对固定性制造费用这一特殊成本的处理上。变动成本计算法强调变动性和固定性制造成本的差异。变动成本计算法只把变动性制造成本分配给产品。这些成本包括直接材料、直接人工和变动性制造费用。吸收成本计算法把所有制造成本都分配给产品。产品成本包括直接材料、直接人工、变动性制造费用和固定性制造费用。因此，在吸收成本计算法下，固定性制造费用是产品成本而不是期间成本

联系：

如 果

1.生产量﹥销售量 2.生产量﹤销售量 3.生产量=销售量

则

完全成本法下的利润﹥变动成本法下的利润 完全成本法下的利润﹤变动成本法下的利润 完全成本法下的利润=变动成本法下的利润

9. 简要说明管理会计信息系统的三大目标。

1.为计算服务，产品以及管理当局感兴趣的其他对象的成本提供信息；

2.为计划、控制和评价，以及持续改善提供信息； 3.为决策的制定提供信息。

10. 资本支出项目第0年（初始投资）的现金流量包括哪些内容？如何计算项目寿命期内税后经营净现金流量？

第0年的净现金流出量（初始付现支出）比较简单，它是项目的初始成本与任何直接相关的现金流入之间的差额。项目的总成本包括土地成本、设备成本（含运输费和安装费）、资产出售利得应缴纳的所得税以及营运资本的增加额。取得资产时的现金流入包括经营性的现金流量（operating cash flow）可以通过项目的收益表来进行估计。年现金流量等于项目的税后利润与非付现费用之和。计算方法可用下列简单公式表示：

税后现金流量=税后净收益+非付现费用

确定经营现金流量的收益法，可以进行分解，以评估收益表上的每个单独项目对税后现金流量的影响。分解法通过计算收益表上每一项目的税后现金流量，来计算总经营现金流量：

税后现金流量=（1-所得税率）×收入-（1-所得税率）×付现费用+所得税率×非付现费用出售资产引起的税收节约、出售

14

资产取得的现金以及诸如税收贷项等税收优惠。

Ⅴ. Calculation

Activity-based costing (pp119ex.4-5;pp100-102example) 4–5

1. Deluxe Percent Regular Percent Price $900 100% $750 100% Cost 576 600 80 Unit gross profit $324 36% $150 20% Total gross profit: ($324  100,000) $32,400,000 ($150  800,000) $120,000,000 2. Calculation of unit overhead costs: Deluxe Regular Unit-level: Machining: $200  100,000 $20,000,000 $200  300,000 $60,000,000 Batch-level: Setups: $3,000  300 900,000 $3,000  200 600,000 Packing: $20  100,000 2,000,000 $20  400,000 8,000,000 Product-level: Engineering: $40  50,000 2,000,000 $40  100,000 4,000,000 Facility-level: Providing space: $1  200,000 200,000 $1  800,000 800,000 Total overhead $ 25,100,000 $73,400,000 Units ÷ 100,000 ÷ 800,000 Overhead per unit $ 251 $ 91.75 4–5 Concluded 3.

Price Cost

Unit gross profit Total gross profit: ($120  100,000) ($175.50  800,000) *$529 + $251 **$482.75 + $91.75 ***Rounded

Using activity-based costing, a much different picture of the deluxe and regular products emerges. The regular model appears to be more profitable. Perhaps it should be emphasized.

Deluxe $900 780* $120 Percent Regular Percent 100% $750.00 100% 87*** 574.50** 77*** 13%*** $175.50 23%*** $12,000,000

$140,400,000

CVP analysis (pp510ex.16-1,-2)

15

16–1

1. Units = Fixed cost/Contribution margin = $10,350/($15 – $12) = 3,450 2. Sales (3,450  $15) $51,750 Variable costs (3,450  $12) 41,400 Contribution margin $ 10,350 Fixed costs 10,350 Operating income $ 0 3. Units = (Target income + Fixed cost)/Contribution margin = ($9,900 + $10,350)/($15 – $12) = $20,250/$3 = 6,750 16–2

1. Contribution margin per unit = $15 – $12 = $3 Contribution margin ratio = $3/$15 = 0.20, or 20% 2. Variable cost ratio = $60,000/$75,000 = 0.80, or 80% 3. Revenue = Fixed cost/Contribution margin ratio = $10,350/0.20= $51,750

4. Revenue = (Target income + Fixed cost)/Contribution margin ratio = ($9,900 + $10,350)/0.20= $101,250

Cost-based pricing (markup) (pp546ex.17-6)

17–6

1. COGS + Markup(COGS) = Sales $144,300 + Markup($144,300) = $206,349 Markup($144,300) = $206,349 – $144,300 Markup = $62,049/$144,300 Markup = 0.43, or 43%

2. Direct materials $ 800 Direct labor 1,600 Overhead 3,200 Total cost $ 5,600 Add: Markup 2,408 Initial bid $ 8,008 EVA (pp421ex.13-3)

13–3 1. 2. 3.

Answering machine EVA = $1,300,000 – 0.12($10,000,000) = $1,300,000 – $1,200,000 = $100,000 Video game player EVA = $0,000 – 0.12($4,000,000) = $0,000 – $480,000 = $160,000 Current division EVA = $13,500,000 – 0.12($75,000,000)

16

= $13,500,000 – $9,000,000 = $4,500,000

The manager will choose to invest in both since the EVA of each is positive. If the manager invests in both, overall EVA will be $4,760,000 ($100,000 + $160,000 + $4,500,000).

MUV/MPV (pp272 ex.9-3)

9–3

1. Materials: $60  20,000 = $1,200,000 Labor: $21  20,000 = $420,000 2. Actual Cost* Budgeted Cost Variance Materials $1,215,120 $1,200,000 Labor 390,000 420,000 *$122,000  $9.96; 31,200  $12.50 3. MPV = (AP – SP)AQ = ($9.96 – $10)122,000 = $4,880 F MUV = (AQ – SQ)SP = (122,000 – 120,000)$10 = $20,000 U

AP  AQ $9.96  122,000

4.

LRV LEV

SP  AQ $10  122,000

$ 15,120 U 30,000 F

SP  SQ $10  120,000

$4,880 F Price

$20,000 U Usage

= (AR – SR)AH

= ($12.50 – $14)31,200 = $46,800 F = (AH – SH)SR

= (31,200 – 30,000)$14 = $16,800 U AR  AH

SR  AH $14  31,200

SR  SH $14  30,000

$12.50  31,200

$46,800 F Rate

$16,800 U Efficiency

Product mix (pp534-535 example)

The controller of Norton Company prepared the following projected income statement:

Sales (5,000 units @ $45) $225,000 Less: Variable costs 125,000 Contribution margin 100,000 Less: Fixed costs 80,000 Operating income $ 20,000 Required

17

(1) Calculate the contribution margin per unit. (2) Calculate the contribution margin ratio. (3) Calculate the break-even number of units. (4) Calculate the margin of safety in units.

How many units must Norton sell to earn operating income equal to $40,000?

(1) contribution margin per unit=100,000/5000=$20 (2) contribution margin ratio=100,000/225,000=0.44 (3) break-even number of units=80,000/20=4000units (4) margin of safety in units=5000-4000=1000units

units Norton must sell=(4000+ 8000)/20=6000units.

2. Norton Company produces product A and product B that use the same material input. Product A uses three pounds of the material for every unit produced, and product B uses five pounds. Currently, Norton has 60,000 pounds of the material in inventory and will not be able to obtain more for the coming year. The unit contribution margin is $27 for product A and $35 for product B. Required:

(1) Determine the optimal usage of the company’s inventory of 60,000

pounds of the material.

(2) Compute the total contribution margin produced by the optimal mix

developed in requirement 1.

(1) The contribution per unit of materials A=27/3=$9 ; B=35/5=$7 60,000/3=20,000units

Thus the optimal mix is 20,000 units of product A and none of product B.

(2) total contribution margin=20,000 * 27=$540,000

3. An electronics division has the opportunity to invest in two projects for the coming year. The outlay required for each investment and the dollar returns follow: Project Ⅰ Project Ⅱ Investment $1000 000 $900 000 Operating income 120 000 135 000

The division currently earns ROI of 14 percentages. The division has approval to require up to $2 million in new investment capital. The corporate headquarters requires that all investments earn at least 10

18

percent. The average capital cost is 10 percent. Required:

1) Calculate, the ROI for each project. 2）Calculate the EVA for each project.

3) If the manager is evaluated on the basis of ROI, what choice of investment( project Ⅰ, Project Ⅱ, neither, or both) will be made? Why?

4）If the manager is evaluated on the basis of EVA, what choice of investment( project Ⅰ, Project Ⅱ, neither, or both) will be made? Why?

1) ROI=Operating income/average operating assets.

 For Project Ⅰ,ROI=120.000/100,000=12%  For Project Ⅱ,ROI=135,000/900,000=15% 2) EVA=after-tax operating income-(weighted average cost of capital * total capital employed)

For Project Ⅰ,EVA=120,000-10%*100,0000=$200,00 For Project Ⅱ,EVA=135,000-10%*900,000=$450,00 3) For both, ROI=(120,000+135,000)/(100,0000+900,000)=13.42% For neither, ROI=14%,

The manager will choose to invest in Project Ⅱ since the ROI is highest for that.

4）The manager will choose to invest in both since the EVA of each is positive, the overall will be $650,00.

19