In: Accounting
Lazy Linda Kitchen Appliances manufactures small kitchen appliances such as toasters and blenders. Last month Lazy Linda recorded the following quality costs:
Discarded electrical components due to defects $ 2000
Managing customer complaints $ 3000
Quality training programs for employees $ 5000
Supplier audit $ 6000
Process inspection $ 4500
Work-in-process inspection $ 5000
Costs of hiring a technician to fix a machine breakdown $ 3000
Legal fees paid to a customer whose pet mouse was
electrocuted due to a faulty toaster $ 6000
Lazy Linda's total prevention cost was:
Select one:
A. $14 000.
B. $5000.
C. $11 000.
D. $15 500.
All the following actions will increase return on investment except :
.
Select one:
A. An increase in sales revenues.
B. A decrease in the company's invested capital.
C. A decrease in the number of units sold.
D. A decrease in operating expenses.
The following information relates to Black's Mount Ltd:
Total assets $ 6 000 000
After tax operating income $ 900 000
Current liabilities $ 500 000
Weighted average cost of capital 12%
What is its economic value added?
Select one:
A. $292 000
B. $120 000
C. $180 000
D. $240 000
ans 1 | ||||
Quality training programs for employees $5000 | ||||
Supplier audit | 6000 | |||
Total prevention cost | 11000 | |||
Prevention cost are incurred to minimize the defects initially only. The examples are quality training, supplier audit , stastocal process control | ||||
ans 2 Correct option | ||||
C. A decrease in the number of units sold. | Supplier Audit | |||
ROI=Income/Capiatl Invested *100 | ||||
So when salesa re increased or operating expenses are | ||||
decreased it increases profit therby increasing ROI. | ||||
When there is decrease in capital invested it will alos increase ROI, as | ||||
on less capital the income is earned | ||||
but if units sold decreases than there is increase in profits which in turn | ||||
decreases ROI | ||||
ans 2 | ||||
Economic value added | ||||
Net operating profit after tax-(WACC*capital invested) | ||||
900000-((6000000-500000)*12%) | 240000 | |||
Option D is correct $240000 | ||||
If any odubt please comment |