Chapter 13 Questions

13.1 Intelco, a professional services firm has overheads of 500,000. It operates three divisions and an accountants estimate of the overhead allocation per division is 50% for Division 1, 30% for Division 2 and 20% for Division 3. The divisions respectively bill 4,000, 2,000 and 3,000 hours. The business-wide overhead recovery rate and the cost-centre overhead recovery rate for Division 1 are, respectively: a) 55.55 and 62.50 b) 62.50 and 55.55 c) 62.50 and 75.00 d) 55.55 and 75.00

13.3

Fixed production costs must be included in the valuation of inventory because: a) they are important for decision-making b) they are necessary for cost-plus pricing c) it is a requirement of SSAP9 d) they identify the over/under absorption of overhead

Chapter 14
14.1

Questions

The projected net cash flows for three projects are (in 000): Year 0 1 2 3 4 5

Project A -350 B -350 C -350

100 40 200

200 100 150

100 210 240

100 260 40

140 160 0

The payback period for each project is (in years): A 3 2.5 3 2.5 B 3 3 2 2 C 2 2 3 3

a) b) c) d) 14.2

The projected net cash flows for a project are (in 000): Year 0 -350 1 40 2 100 3 210 4 260 5 160

Assuming the initial investment is depreciated over the life of the project, the accounting rate of return for the project is: a. 25% b. 33% c. 40% d. 48% The projected net cash flows for an investment are (in 000): Year 0 -850 1 130 2 200 3 300 4 200 5 150

14.4

The net present value of the investment, assuming a 7% cost of capital is: a) b) c) d) 801,000 -801,000 49,000 -49,000

Chapter 15

Questions

15. 1 A responsibility centre for which a manager is held accountable for the return on investment is usually regarded as a: a) cost centre b) profit centre c) investment centre d) business centre 15.2 The investment in a division of 400,000 returns a profit before interest of 25,000. However, Head Office charges a notional 5% cost of capital. The Return on Investment (%) and Residual income () are: a) 6.25% and 20,000 b) 6.25% and 5,000 c) 5% and 25,000 d) 5% and 5,000 The division of a multinational corporation shows sales of 2.1 million, variable cost of sales of 1.3 million and divisional overheads of 600,000 60% of which is deemed controllable by the division and the other 40% is a head office allocation. The profit on which the divisional manager should be evaluated is: a) 800,000 b) 440,000 c) 360,000 d) 200,000

15.3