BGN 5e Exam Questions - Chapter 10

1. The Western Division of Boulder Inc. recorded the following operating data for the past
year:

Sales $400,00
0
Net operating income 50,000
Average operating assets 200,000
Stockholders’ equity 160,000
Residual income 26,000

For the past year, the division’s return on investment was:

A) 15.75%.
B) 20.50%.
C) 25.00%
D) 31.25%.

Feedback – The correct answer is C:

Learning Objective 2 – Determine the return on investment for the past year as follows:
ROI = Net operating income ÷ Average operating assets
ROI = $50,000 ÷ $200,000 = 25%

2. The Central Division of Pitt Enterprises recorded the following operating data for the past
year:

Sales $400,00
0
Net operating income 50,000
Average operating assets 200,000
Stockholders’ equity 160,000
Residual income 26,000

For the past year, the margin was:

A) 12.50%.
B) 13.00%.
C) 14.75%.
D) 15.00%.

Feedback – The correct answer is A:

Learning Objective 2 – Determine the margin for the past year as follows:
Margin = Net operating income ÷ Sales
Margin = $50,000 ÷ $400,000 = 12.5%
3. The Central Division of Pitt Enterprises recorded the following operating data for the past
year:

Sales $400,00
0
Net operating income 50,000
Average operating assets 200,000
Stockholders’ equity 160,000
Residual income 26,000

For the past year, the division’s turnover was:

A) 2.
B) 4.
C) 10.
D) 25.

Feedback – The correct answer is A:

Learning Objective 2 – Determine the turnover for the past year as follows:
Turnover = Sales ÷ Average operating assets
Turnover = $400,000 ÷ $200,000 = 2.0

4. The Northwest Division of Durango Inc. recorded the following operating data regarding
its single product for the past year:

Unit selling price $40

Variable cost per unit $24
Annual fixed costs $560,000
Average operating assets $3,000,00
0

To have an ROI of 16%, the division must sell:

A) 52,000 units.
B) 65,000 units.
C) 240,000 units.
D) 1,300,000 units.

Feedback – The correct answer is B:

Learning Objective 2 – First, determine the company’s required operating income as
follows:
ROI = Net operating income ÷ Average operating assets or
Net operating income = Average operating assets x ROI
Net operating income = $3,000,000 x .16 = $480,000
Then, determine the number of units (referred to as “X” in the formula below) that must
be sold to generate that operating income as follows:
Net operating income = Sales – Variable expenses – Fixed expenses
$480,000 = $40X – $24X – $560,000
$1,040,000 = $16X
X = 65,000