Multiple Choice Answers

1. The Post Division of the M.T. Woodhead Company produces basic posts which can be sold to outside customers or sold to the Lamp Division of the M.T. Woodhead Company. Last year the Lamp Division bought all of its 26,600 posts from Post at $1.40 each. The following data are available for last year’s activities of the Post Division:

Capacity in units315,000 posts
Selling price per cost to outside customers$2.24
Variable costs per post$1.20
Fixed costs, total$239,000

The total fixed costs would be the same for all the alternatives considered below. Suppose there is ample capacity so that transfers of the posts to the Lamp Division do not cut into sales to outside customers. What is the lowest transfer price that would not reduce the profits of the Post Division?

$1.71
$1.65
$2.24
$1.20

2. Garnick Corporation keeps careful track of the time required to fill orders. The times recorded for a particular order appear below:

Hours
Move time11.4
Wait time35.8
Queue time2.1
Process time0.4
Inspection time0.1

The delivery cycle time was: (Round your intermediate calculation and final answer to 1 decimal place.)

49.8 hours
11.4 hours
49.3 hours
13.5 hours

3. Aide Industries is a division of a major corporation. Data concerning the most recent year appears below:

Sales$18,010,000
Net operating income$1,242,690
Average operating assets$4,640,000

The division’s margin is closest to: (Round your answer to 1 decimal place.)

28.0%
26.8%
34.9%
6.9%

4. Aide Industries is a division of a major corporation. Data concerning the most recent year appears below:

Sales$18,270,000
Net operating income$1,077,930
Average operating assets$4,440,000

The division’s return on investment (ROI) is closest to: (Do not round intermediate calculations. Round your answer to 2 decimal places.)

20.43%
24.28%
5.90%
2.90%

5. A company’s current net operating income is $24,500 and its average operating assets are $109,000. The company’s required rate of return is 18%. A new project being considered would require an investment of $20,700 and would generate annual net operating income of $5,600. What is the residual income of the new project?

($1,190)
$3,726
$5,600
$1,874