Question

In: Accounting

Lazy Linda Kitchen Appliances manufactures small kitchen appliances such as toasters and blenders. Last month Lazy...

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

Solutions

Expert Solution

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

ekkarill92 answered 2 years ago
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