Question

1. A division in ABC Co. had the following financial data for March 2019: sales $9,000,000, average operating assets $3,000,000, return on investment 18%, minimum required rate of return 16%. What was the amount of margin (or profit margin) for the division

A. 4% B. 5% C. 6% D. 7%

2. A division in ABC Co. had the following financial data for March 2019: sales $9,000,000, average operating assets $3,000,000, return on investment 18%, minimum required rate of return 16%. What was the amount of residual income for the division?

	A.	$420,000
	B.	$480,000
	C.	$60,000
	D.	$540,000

3. A division manager in ABC Co. is trying to decide whether to make an investment of $200,000 operating assets with a return on investment of 17%. The division currently has a return on investment of 18%, and a minimum required rate of return of 16%. Assuming the manager wants to get higher compensation, which of the following is true?

	A.	If the manager’s compensation based on return on investment, she is going to make the new investment
	B.	If the manager’s compensation based on residual income, she is going to make the new investment.
	C.	The division is worse off with the new investment.
	D.	Residual income is a better performance measure than return on investment.

4. ABC Co. has the following operating data for a product: wait time 40 minutes, process time 15 minutes, inspection time 5 minute, move time 10 minutes, queue time 20 minutes. What is the amount of delivery cycle time for the product?

	A.	90 minutes
	B.	50 minutes
	C.	75 minutes
	D.	60 minutes

QUESTION 5

ABC Co. has the following operating data for a product: wait time 40 minutes, process time 15 minutes, inspection time 5 minute, move time 10 minutes, queue time 20 minutes. What is the amount of manufacturing cycle efficiency for the product?

	A.	80%
	B.	60%
	C.	40%
	D.	30%

Answer 1

Question 1

Given, ROI = 18%

ROI = Net Income/Avg Operate Assets = 18 %

that implies, Net Income = Avg Operate Assets*18% = 3,000,000*18% = $ 540,000

Therefore, Profit Margin = Net Income/Sales = 540,000/9,000,000 = 6%

Therefore, Option C. 6% is the answer

Question 2

Given, ROI = 18%

ROI = Net Income/Avg Operate Assets = 18 %

that implies, Net Income/Residual Income = Avg Operate Assets*18% = 3,000,000*18% = $ 540,000

Therefore, Option D. $540,000 is the answer

Question 3

Option B. If the manager’s compensation based on residual income, she is going to make the new investment is the answer.

Explanation:

If the manager accepts the project with lesser ROI, that decreases the Overall ROI of the company.

Therefore, if the manager's compensation based on residual income,she is going to make the new investment even though the ROI is lower for that investment.

Question 4

Delivery Cycle Time = wait time+process time+inspection time+move time+queue time

Delivery Cycle Time = 40+15+5+10+20 = 90 minutes.

Option A. 90 minutes is the answer

Question 5

Manufacturing Cycle Efficiency = Value added time/manufacturing cycle time

Value added time = Process time = 15 minutes

Manufacturing cycle time = process time+inspection time+move time+queue time = 15+5+10+20 = 50 minutes

Therefore, Manufacturing Cycle Efficiency = 15/50 = 30%

Option D. 30% is the answer