Question 121. Las Sendas, Inc. had average operating assets of $4,000,000 and sales of $2,000,000 in 2013. If the c

121. Las Sendas, Inc. had average operating assets of $4,000,000 and sales of $2,000,000 in 2013. If the controllable margin was $600,000, the ROI was

a. 60%

b. 50%

c. 30%

d. 15%

122. Trails and Paths, Inc. had average operating assets of $6,000,000 and sales of $3,000,000 in 2013. If the controllable margin was $600,000, the ROI was

a. 50%

b. 40%

c. 20%

d. 10%

123. The area manager of the Red, White, and Brew Restaurants is considering two possible expansion alternatives. The required investments, expected controllable margins, and the ROIs of each are as follows:

Project Investment Controllable Margin ROI

Phoenix $120,000 $30,000 25%

Chicago $540,000 $50,000 9.25%

The Red, White, and Brew segment has currently $2,000,000 in invested capital and a controllable margin of $250,000. Which one of following projects will increase the Red, White, and Brew division’s ROI?

a. Both the Phoenix and Chicago options

b. Only the Phoenix option

c. Only the Chicago option

d. Neither the Phoenix nor the Chicago options

124. Bogey Co. recorded operating data for its Cheap division for the year. Bogey requires its return to be 10%.

Sales $ 1,400,000

Controllable margin 160,000

Total average assets 4,000,000

Fixed costs 100,000

What is the ROI for the year?

a. 4%

b. 35%

c. 6%

d. 1.5%

125. Dingo Division’s operating results include: controllable margin of $150,000, sales totaling $1,200,000, and average operating assets of $500,000. Dingo is considering a project with sales of $100,000, expenses of $86,000, and an investment of average operating assets of $200,000. Dingo’s required rate of return is 9%. Should Dingo accept this project?

a. Yes, ROI will drop by 6.6% which is still above the minimum required rate of return.

b. No, the return is less than the required rate of 9%.

c. Yes, ROI still exceeds the cost of capital.

d. No, ROI will decrease to 7%.

1 26. Grown Industries reported the following items for 2013:

Income tax expense $ 60,000

Contribution margin 200,000

Controllable fixed costs 80,000

Interest expense 40,000

Total operating assets 650,000

How much is controllable margin?

a. $200,000

b. $120,000

c. $60,000

d. $20,000

127. Griffin Corp. is evaluating its Piquette division, an investment center. The division has a $60,000 controllable margin and $400,000 of sales. How much will Griffin’s average operating assets be when its return on investment is 10%?

a. $600,000

b. $660,000

c. $400,000

d. $340,000

128. An investment center generated a contribution margin of $400,000, fixed costs of $200,000 and sales of $2,000,000. The center’s average operating assets were $800,000. How much is the return on investment?

a. 25%

b. 175%

c. 50%

d. 75%

129. Rhein Manufacturing recorded operating data for its auto accessories division for the year.

Sales $750,000

Contribution margin 150,000

Total direct fixed costs 90,000

Average total operating assets 400,000

How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant?

a. 45.0%

b. 22.5%

c. 15.0%

d. 12.0%

130. The current controllable margin for Henry Division is $93,000. Its current operating assets are $300,000. The division is considering purchasing equipment for $90,000 that will increase annual controllable margin by an estimated $15,000. If the equipment is purchased, what will happen to the return on investment for Henry Division?

a. An increase of 16.1%

b. A decrease of 13.3%

c. A decrease of 3.3%

d. A decrease of 7.2%

\131. Monte, Inc. recorded operating data for its Sandtrap division for the year. Monte requires its return to be 9%.

Sales $1,000,000

Controllable margin 180,000

Total average assets 600,000

Fixed costs 60,000

How much is ROI for the year?

a. 10%

b. 17%

c. 20%

d. 30%

132. Betsy Union is the Pika Division manager and her performance is evaluated by executive management based on Division ROI. The current controllable margin for Pika Division is $46,000. Its current operating assets total $210,000. The division is considering purchasing equipment for $40,000 that will increase sales by an estimated $10,000, with annual depreciation of $10,000. If the equipment is purchased, what will happen to the return on investment for the division?

a. An increase of 0.5%

b. A decrease of 0.5%

c. A decrease of 3.5%

d. It will remain unchanged.

133. Benet Division of United Refinery Company’s operating results include: controllable margin, $200,000; sales $2,200,000; and operating assets, $800,000. The Benet Division’s ROI is 25%. Management is considering a project with sales of $100,000, variable expenses of $60,000, fixed costs of $40,000; and an asset investment of $150,000. Should management accept this new project?

a. No, since ROI will be lowered.

b. Yes, since ROI will increase.

c. Yes, since additional sales always mean more customers.

d. No, since a loss will be incurred.

134. The Fulmar Division of Jayne Manufacturing had an ROI of 25% when sales were $3 million and controllable margin was $600,000. What were the average operating assets?

a. $150,000

b. $750,000

c. $2,400,000

d. $12,000

135. Naples, Inc. recorded operating data for its shoe division for the year.

Sales $750,000

Contribution margin 135,000

Total fixed costs 90,000

Average total operating assets 300,000

How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant?

a. 25%

b. 18%

c. 45%

d. 12%

136. A distinguishing characteristic of an investment center is that

a. revenues are generated by selling and buying stocks and bonds.

b. interest revenue is the major source of revenues.

c. the profitability of the center is related to the funds invested in the center.

d. it is a responsibility center which only generates revenues.

137. A measure frequently used to evaluate the performance of the manager of an investment center is

a. the amount of profit generated.

b. the rate of return on funds invested in the center.

c. the percentage increase in profit over the previous year.

d. departmental gross profit.

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