Accounts

1. (TCO D) Delmar Corporation is considering the use of residual income as a measure of the performance of its divisions. Which major disadvantage of this method should the company consider before deciding to institute it?
Investments may be adopted that will decrease the overall return on investment.
The minimum required rate of return may eliminate desirable investments.
Residual income does not measure how effectively the division manager controls costs.
This method does not take into account differences in the size of divisions.

2. (TCO D) Given the following data: What is the return on the investment (ROI)?
Sales $50.000
Net operating income $5,000
Contribution margin $20,000
Average operating assets $25,000
Stockholder’s equity $15,000
10%
20%
16.70%
80%

3. (TCO D) Seebach Corporation has two major business segments-Apparel and Accessories. Data concerning those segments for June appear below.
Sales revenues, Apparel
######
Variable expenses, Apparel
######
Traceable fixed expenses, Apparel
$98,000
Sales revenues, Accessories
######
Variable expenses, Accessories
######
Traceable fixed expenses, Accessories
######

Common fixed expenses totaled $292,000 and were allocated as follows: $155,000 to the Apparel business segment and $137,000 to the Accessories business segment.

Required:
Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts.