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Which of the following costs should consider the tax shield effect in computing the costs of capital? A. Cost of debt B. Cost of common stock C. Cost of preferred stock D. Cost of retained earnings Which of the following is not considered in the cash conversion cycle? A. Receivable collection period B. Debt repayment period C. Inventory conversion period D. Payable deferral period Cash flows from capital budgeting projects are assumed to be received A. At the beginning of the year B. Evenly during the year C. At the end of the year D. At a certain point of the year In the absence of shutdown costs, A. Shutdown point is higher than breakeven point B. Shutdown point is equal to the breakeven point C. Shutdown point is lower than breakeven point D. One cannot determine the relationship between shutdown point and breakeven point The balanced scorecard approach does not require looking at performance from which of the following perspectives? A. Customer B. Employees C. Competitor D. Internal business processes Contribution margin ÷ profit after interests and preferred dividends = A. Degree of operation leverage B. Degree of financial leverage C. Degree of total leverage D. No meaningful amount If an increase in product price by 5% causes a decrease in quantity demanded by the same percentage, then the demand for the product is said to be A. Elastic B. Unit-elastic C. Inelastic D. Perfectly Elastic Under the high-low method, the unit variable cost closely resembles the math concept of A. Y-intercept B. X-intercept C. Slope of the line D. Independent variable Profit under variable costing fluctuates with A. Sales only B. Production only C. Both sales and production D. Neither sales nor production The path that has the highest slack time in the PERT network is A. Critical path B. Longest path C. Shortest path D. Psychopath
11.Which of the following is an invalid measure of productivity? A. Partial operational B. Partial financial C. Total operational D. Total financial
12.Which of the following situations is among the concerns of a controller (as opposed to those of a treasurer)? D A. The company is in need of financing from external sources. B. The company is already late in filing its monthly VAT returns. C. The company is guilty of unplanned material bank overdraft. D. The company is in default of its account payable to suppliers. 13. B A firm’s working capital financing requirements may be divided into A. Aggressive and conservative B. Seasonal and permanent C. Current and non-current D. Internal and external Dividend yield multiplied by price-earnings ratio A. Pay-out ratio B. Retention ratio C. Equity ratio D. Earnings per share A term descriptive of managerial accounting. A. Historical financial statements B. Generally accepted accounting principles C. Discretionary D. Regulatory Identify the term that does not belong to the group. A. Differential cost B. Prevention cost C. Appraisal cost D. Internal failure cost Which of the following capital budgeting techniques is non-discounted? A. Simple rate of return B. Sophisticated rate of return C. Benefit-cost ratio D. Net present value Identify the term that does not belong to the group. A. Probability analysis B. Regression analysis C. High-low method D. Scattergraph method A system not used in inventory management. A. Lockbox system B. Economic order quantity C. Materials requirement planning system D. ABC system A factor that is dealt with by both ‘linear programming’ and ‘best product combination.’ A. Efficiency B. Productivity C. Solvency D. Scarcity
16. 6. C A
21. a. b. c. d.
A(n) ________ cost increases or decreases in intervals as activity changes. historical cost fixed cost step cost budgeted cost
costs that cannot be controlled. Finished Goods $13. per unit variable costs will rise. If its sales rise.200 and credit Overhead $37. ANS: A 36. fixed manufacturing costs not allocated to units produced.456.The costing system that classifies costs by both functional group and behavior is a.Costs that are incurred to preclude defects and improper processing are: a. the attempt to control expenditures at a reasonable level. appraisal costs failure costs c. relative to variable costing.000. c.456 FG: 115. theoretical capacity b. is variable or fixed. c. d.200 and that this amount is material. d.The estimated maximum potential activity for a specified time is: a. appraisal costs failure costs yes no yes no Cost driver ANS: A WIP: 73. b.800 = $13. prevention costs b. Cost of Goods Sold $15. prevention costs b. Debit Work in Process $8. higher income and assets. c. d. excess variable overhead costs.456. which of the following is not a product cost component? a. b. will result in a. d. c. on neither the balance sheet nor income statement. Finished Goods $13. practical capacity ANS: A 29.200 Debit Cost of Goods Sold $37.450 30. d. d.ANS: C a. product cost. will increase with changes in levels of activity.150/321. variable costing. can be conveniently and physically traced to a cost object under consideration.000/321. detection costs ANS: C 26. c.Costs that are incurred for monitoring and inspecting are: a. b. Refer to Zenith Corporation. b. general and administrative expense. only on the income statement. lower income and assets.294.) c. janitorial supplies used in a factory d. ANS: A 31. b. ANS: B 33. only on the balance sheet. lower income but higher assets.If a firm produces more units than it sells. A firm presently has total sales of $100.200 Debit Overhead $37. Assume that Zenith has underapplied overhead of $37. job order costing. prevention costs b. b.200 and credit Work in Process $8. is controllable or non-controllable. c. ANS: B 32. higher income but lower assets. If a firm uses variable costing. c. normal capacity expected capacity c. fixed manufacturing overhead will be included a. What journal entry is needed to close the overhead account? (Round decimals to nearest whole percent.450 Debit Work in Process $37. d. b. b. net income based on absorption costing will go up more than its net income based on variable costing. c. Cost of Goods Sold $15. absorption costing. detection costs ANS: D 28. ANS: A 35.450 and credit Overhead $37. . d.294 EI: 133. A functional classification of costs would classify "depreciation on office equipment" as a a. yes yes no no ANS: C 24. detection costs ANS: A 27.800 = $ 8. fixed costs will also rise. d.200 and credit Overhead $37. d. ANS: C Unabsorbed fixed overhead costs in an absorption costing system are a. Costs that are incurred when customers complain are: a. variable cost. Which of the following always has a direct cause-effect relationship to a cost? Predictor a.294. b. ANS: C 25. b. c. absorption costing. indirect production labor wages c. any activity that can be used to predict cost changes. d.The distinction between direct and indirect costs depends on whether a cost a. c.The term cost driver refers to a.650/321. variable overhead costs not allocated to units produced. d. process costing. rent on a factory building b. selling expense.200 22. commission on the sale of a product ANS: D 23.800 = $15. net income based on variable costing will go up more than its net income based on absorption costing. d. appraisal costs failure costs 34. its a. on both the balance sheet and income statement.
45. If a cost is irrelevant to a decision. d. generate the most profit for each unit sold. As with many such techniques. In the pharmaceutical or food industries. an incremental cost. Operating efficiency and employee productivity are constant at all volume levels. ANS: B 40. d. ANS: D 48. The product selling price per unit is constant at all volume levels. c. ANS: D 44. b. the firm('s) a. a cost that continues to be incurred in the absence of activity. d. business-value-added activities. ANS: D 46. d. c.The term incremental cost refers to a. quality control inspections would most likely be viewed as a. ANS: B 49. sales price must equal its variable costs. variable costs as a percentage of net sales increase. c. b. must have no fixed costs. All costs incurred by a firm can be separated into their fixed and variable components. c. analyze performance problems. b. ANS: D 42. For multi-product situations. Irrelevant costs generally include Sunk costs a. value-added time. c. c. have the highest contribution margin ratio. sales price must equal $0. a sunk cost. ANS: C 41. ANS: D b. the person who gathers and transfers cost data to the management accountant. variable costs as a percentage of net sales decrease. b. the product that has the highest contribution margin per unit will a. ANS: B 47. identify only value-added activities.The potential rental value of space used for production activities a. c. c. any activity that can be used to predict cost changes.[(CM/Sales) (Sales)]. b.The term cost driver refers to a. c. d. Cost-volume-profit analysis is a technique available to management to understand better the interrelationships of several factors that affect a firm's profit. generate more profit for each $1 of sales than the other products. break-even point increases. any activity that causes costs to be incurred. The contribution margin ratio always increases when the a. What is X? a. non-value-added activities.If a firm's net income does not change as its volume changes. a variable cost. ANS: B 38. d. . b.The amount of time between the development and the production of a product is a. must be in the service industry. trace technology costs to products. any activity that causes costs to be incurred. slope of the contribution margin line would be less pronounced (flatter). contribution margin line would shift upward parallel to the present line. the profit foregone by selecting one choice instead of another. d. a future cost. is a variable cost of production. d. the sales mix can vary at all volume levels. net income 50. fixed costs contribution margin variable costs ANS: D 37. process-efficiency activities. the person who gathers and transfers cost data to the management accountant. have the lowest variable costs per unit. c. c. b. Which of the following is not a major assumption underlying CVP analysis? a. contribution margin line would shift downward parallel to the present line. d. d. promote excellence standards. yes yes no yes ANS: D yes no no yes Historical costs no no yes yes Allocated costs 43.Consider the equation X = Sales . the additional cost of producing or selling another product or service. value-added-activities. b. a cost common to all choices in question and not clearly or feasibly allocable to any of them. d. the attempt to control expenditures at a reasonable level. b. d. production time.If a company's fixed costs were to increase. b. d. b. the product life cycle. the effect on a profit-volume graph would be that the a. slope of the contribution margin line would be more pronounced (steeper). break-even point decreases. the cost could not be a.c. d. b. lead time. Activity-based costing and activity-based management are effective in helping managers do all of the following except a. In a multiple-product firm. c. c. the accountant oversimplifies the real world by making assumptions. ANS: C ANS: C 39.
b. contract vendor. timing of cash flows relating to the project c. amounts of cash flows relating to the project ANS: A 64. c. is a sunk cost of production. b. A is less profitable than B.Which of the following costs would not be accounted for in a company's recordkeeping system? a. respectively. sales minus total expenses of the segment. payback period. target costing. d. d. b. d. b. b. The focus of attention for this decision should be on a. budgeting. pre-tax rate of interest for bonds and stated annual dividend rate for preferred stock. product line operating income. b. direct labor b. ANS: represents an opportunity cost of production. d.All other factors equal. discounting. after-tax rate of interest for bonds and stated annual dividend rate for preferred stock. opportunity cost of production ANS: B 60. an expired cost c. ANS: D 61. only one objective function. ANS: B 56. an opportunity cost ANS: D The basis for measuring the cost of capital derived from bonds and preferred stock. relevant information if it can be quantified.An increase in direct fixed costs could reduce all of the following except a. c. c. the reliability of a potential supplier is a. lessee. sales minus total variable expenses and avoidable fixed expenses of the segment. c. d. ANS: B 55. the net income shown on the segment's income statement. c. product harvesting. accounting rate of return. d. net present value.A manager is attempting to determine whether a segment of the business should be eliminated. a time line ANS: B 65. centralized insourcer. internal rate of return.When a project has uneven projected cash inflows over its life. profitability index. a post investment audit d. impact of the project on income taxes to be paid d. c. d. internal rate of return. pre-tax rate of interest for bonds and stated annual dividend rate less the expected earnings per share for preferred stock.When using one of the discounted cash flow methods to evaluate the desirability of a capital budgeting project. c. If investment A has a payback period of three years and investment B has a payback period of four years. d.An outside firm selected to provide services to an organization is called a a. ANS: D 54.In a make or buy decision. B 58. which of the following factors is generally not important? a. a screening decision b. the relative profitability of A and B cannot be determined from the information given.In capital budgeting. ANS: 52. a trial-and-error approach c. equipment depreciation c. b. ANS: A A linear programming problem can have a. A is more profitable than B. c. d. . A and B are equally profitable. after-tax rate of interest for bonds and stated annual dividend rate less the expected earnings per share for preferred stock. no more than three resource constraints. ANS: C 57. sales minus total direct expenses of the segment. b. discount rate. an irrelevant decision factor. D 59. b. an analyst may be forced to use _______ to find the project's internal rate of return. a. Which of the following costs is irrelevant in making a decision about a special order price if some of the company facilities are currently idle? a. is an unavoidable cost. outsourcing. a qualitative decision factor. c. ANS: B 53. no more than three independent variables. an unexpired cost b. an opportunity cost of continued production. 62.b. b. a large number is preferred to a smaller number for all capital project evaluation measures except a. c. is the a. network organization. product line segment margin. product line contribution margin. d. insourcing. c. c. ANS: A 63. annuitizing. d. corporate net income. a product cost d. a firm's cost of capital is frequently used as the a. method of financing the project under consideration b. then a. variable cost of utilities d. no more than two dependent variables for each constraint equation.Contracting with vendors outside the organization to obtain or acquire goods and/or services is called a.The time value of money is explicitly recognized through the process of a. ANS: D 51. interpolating. b.
pro forma financial statements. D.000 B.500 (20 percent of which are salvageable upon dismantling) and labor costing P 1. which of the following would be a logical action by the government? A.000 plus freight and installation costs estimated at P 23. C 3. Pink will realize a net benefit by constructing its own on-site office of Forbidden Kingdom project only if the length of the project is estimated to be at least: A. the break-even rate of return (IRR) for the project is closest to A. Assuming a current ratio of 3.000 miles.000.000 units were purchased of which 50% was at P 24. 100%. discounts cash flows at a minimum desired rate of return. P 145. what unit sales would be needed to earn P 150. production budget.000. uses a learning curve of 80% for all new products it develops. 20% was at P 24. cash budget. 120% D. the first part of the master budget to be prepared would be the a. P 900 credit On January 1. c. 2. 6. During 2008. 5. The accounts receivable turnover is A. P 173. PROBLEMS 1.000.30% C. it generated sales amounting to P 20 M. C 68.Chronologically. measures a project's internal rate of return. 18 months B. Buy government securities D. 11.500 units of the new product during the next year. 12. b. applies only to mutually exclusive investment proposals. If a truck is driven only 80.120-capital investment project.000 to repair equipment now in service. 117% C. Pink can rent a house trailer for this purpose at a rate of P 100 per month.3% D. 11. c.1% B. P 25. setting standards for the use of important but hard-to-find materials. B Jonlee Corporation reported sales of P 80. 83%. d. ANSWER: P 125 If the economy is facing demand-pull inflation. 120%.93% D. 20. The income tax rate is 40%. B.6 D. 140% Green Company plans to purchase new equipment costing P 140. 11. A. 7. P 131. 12.000 Assumed tax rate 40% A.000.6 per mile. The purchase of the new equipment will prevent the company from having to incur costs of P 30. The EOM (end-of-month) term has effectively extended credit period up to an average of 75 days from the last day of the discount period.000 net annual cash inflows from a 4-year P 59. Inc.000. 9. 11. The net present value method of evaluating proposed investments a. P 153. 96%. Determine the unit cost of production for next year for labor-related costs. d. Brown Company has a receivable balance of P 1 M. ANS: A A 8. Ignoring interest and income tax effects.4 x B.000 miles during a year. C C A supplier extends a credit term of 2/10. ANS: profitability index. the average operating cost is P 11.4 C.6 B.70 each.45% B. the respective sales percentages would be A. 12. b. Increase government spending .000 D 12. ignores cash flows beyond the payback period.556 units C 9. a total of 10.000 after taxes? Forecast sales (P 30 per unit) P 600. 25 months Assuming P 20. A 7. the average operating cost increases to P 13. planning for appropriate assignments of resources. As an alternative.4 x A careful study by a company’s cost analyst has determined that if a truck is driven 120. The raw materials cost variance is A.0 x C. and fringe benefits) of P 120. 2008 receivable collections amounted to P 9.000 C. 2. The net investment in the new equipment for capital investment planning is A. indirect labor. estimate the unit variable cost. 100%. 20 months C. ANSWER: P 252.889 units 20. Blue. A trial run of 500 units of a new product shows total laborrelated costs (direct. Round-off answer to the nearest whole amount.000 Manufacturing fixed costs 90.80% 6. P 100 credit C. Pink estimates that the construction of an on-site office would require materials costing P 1.2% C.5 and a quick ratio of 1. P 900 debit D.000 Administrative fixed costs 120. During the year. what is the nominal annual cost of trade credit? A. Increase income taxes B.000 each year. of which 60% is made on credit. d.000 in 2008.000 Variable costs 240.60 each. 4. 13. b.6 per mile.000 units 25.90 each. and the balance.000 66.000 D. 100%. stating and establishing long-term plans. C Pink Construction needs an on-site office for its Forbidden Kingdom Construction project. ANS: D 67. planning activities for promoting products for the future. P 100 debit B. Red Company established a standard cost for raw materials at P 25. determine the amount inventory of a company whose current liabilities are P 120.4% 10. n/60 (EOM). sales budget. Depreciation on the new equipment has been estimated at P 20. c. 4. Pink can construct an on-site office. Management plans to produce 1. ANS: D Strategic planning is a. C.d. 2008. Lower the discount rate C. In an index analysis where 2007 is used as the base year. 112% B. A 13. 22 months D. 9. 14.00 per unit.4.000 and long-term liabilities P 480. 80%.000 If the following data are estimated for next year.000. P 96.000 in 2006.8 x D. 12. Using a 365-day year.333 units 18. Using the high-low method. 80%.000 in 2007 and P 112.
00 + $2.00 20.500. Net profit ratio ÷ contribution margin ratio = __________ ANSWER: Margin of safety ratio (or safety margin percentage) 24. ANSWER: 3x or 3:1 or 300% ANS: A DM + DL + VFOH + FFOH = Standard Cost per Unit $3.00 fixed factory overhead = $4.000.30.05.80 per unit 4. If the annual percentage rate of interest is 10 percent compounded quarterly and payments are to be made quarterly.50 + $1. $11. Product A uses 2 hours of Function 1 at $10 per hour.000.55. and the firm’s tax rate is 40%. It has the following capital structure: Common stock 50% Preferred stock 20% Long-term debt 30% Assuming the company’s cost of common equity is 10%. $4.000 17.000. Purchases = 80% of cost of sales.600 $ 200. If earnings per share is P 20. $8. (2 minutes) ANSWER: 6. Return on equity is 20%. $ 7.600 ========= Problem 25-26 Smithson Company Smithson Company produces two products (A and B). what is the pre-tax cost of long-term debt? Round-off answer to two decimal places. Black Merchandising has an optimal order quantity of 2.000 75. ANS: C Sales: Variable Expenses Contribution Margin Fixed Expenses Overhead Net Income PROBLE 21-24 Langley Corporation Langley Corporation has the following standard costs associated with the manufacture and sale of one of its products: Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed SG&A expense $3. c.8%. and 1 hours of Functions 1. $11. b. Plowback ratio is 40% while dividend yield is 20%. d. then how much would be the initial public offering per share? ANSWER: P 60 19.00 = $11. If Black also maintains a safety stock of 100 units. Under variable costing. $13. $547. Refer to Langley Corporation. and 3. 21. ANS: B 1. All costs were equal to standard. . Yellow Corporation’s estimated its after-tax cost of capital is 7. $560. $4. then how much is the total annual carrying costs? ANSWER: P 330. respectively. the standard production cost per unit for the current year was a.400 $ 837.000 units each year. the income before income taxes for the year was a. the cost of preferred equity is 8%. $7. Refer to Langley Corporation.50 + $1. Three overhead functions are needed for each product. Transaction cost incurred is P 12 per order.30. 10% is the profit margin when sales level last year reached P 100.600.000 favorable units production variance * $4.67% 16.30. Black’s customers demand 50. Smithson produces 800 units of A and 8.000.5 direct labor hours). $7.30 Refer to Langley Corporation.000 U. ANS: B DM + DL + VOH = Standard Production Cost per Unit $3. Based on variable costing.30 14.80 = $7.000 units and sold 48. Determine the debt-equity ratio. Product B uses 1. on the average.000 362. c. the standard production cost per unit for the current year was a. d. Direct material and labor costs for Product A total $35 (which reflects 4 direct labor hours).00 + $2. c. then what would have been the variable costs last year to break-even? ANSWER: P 45. 1 hour of Function 2 at $7 per hour. 15.000 per year $1. c.000 F.600.25 per unit $75.000 U.200. b. During its first year of operations Langley manufactured 51.30.80 + $4. $570. Return on investment is 5%.000 units. $11.00 per unit 2. If the operating leverage last year was 4 times. If cost of goods sold is P 250. d. The volume variance under absorption costing is a.55.13. 23.50 per unit 1. 20% of inventory cost. b. Fixed overhead is.000 $ 562. then how much is the difference in income reported under absorption costing and variable costing? ANSWER: P 10.00 per unit (based on an estimate of 50. then how many percent is the effective annual rate? (Round-off answer to two decimal places) ANSWER: 10.000 22. d.000 units of B each period. 8. $11.38% 18. $8. and 6 hours of Function 3 at $18 per hour. Under absorption costing.000 F. $562.55.000 units per year) . The selling price per unit was $25. direct material and labor costs for Product B total $22 (which reflects 1. 2. b.000 F Refer to Langley Corporation.
50. b. $73. 100 percent. $95.000 units * $24/unit CM) .000 to manufacture the part. b. $500 c. net income should exceed the prior year’s net income by: a.000 / 44/unit) = 4.000 CM Ratio: $(100.$500.000 c.000/500.000 units = $40. 4.00. d. $86.545 units 31.000 28.900.000? a.000 b.000 $500 $150.300 c. 20 percent.001st unit sold? a. d. $1. and fixed costs of $30.000 units = $150/unit 1. $40.000 d. $1. and applied fixed overhead.Knox Company uses 10.000/87. $150 d. variable overhead. 4. b. None of the responses are correct.000. c. How many units of Product A would have to be sold in July to generate an operating income of $20. $13.000 26.900.50.00 Total $ 115.000 to manufacture the part.082568807 (7.000. Refer to Smithson Company If total overhead is assigned to A and B on the basis of overhead activity hours used. $30. Sombrero Company manufactures a western-style hat that sells for $10 per unit. It projects the sales price at $40 per unit.000) (60.67 Units Produced 800 OH per Unit $ 80. $160.200/87.403. Knox has received a quote of $55 from a potential supplier for this part. ANS: C Proportion 0. Ledbetter Company reported the following results from sales of 5.000/1. Unique expects its cost structure and sales price per unit to remain the same in the current year.000 units = $550.44 DM and DL/Unit $ 22. A firm estimates that it will sell 100.Profit = $2.10 = $44/unit $(200.50 29.000) $ 20. If the current year projections are realized. The costs to make a part are: direct material. ANS: C Cost to make: $55/unit * 10.000 (120. $12. 20 percent c. c. what is the projected contribution margin ratio? a. c. ANS: D Proportion 0. c. 70 percent of the applied fixed overhead would continue.32. This is its sole product and it has projected the break-even point at 50.000 to buy the part.000 . Sales price per unit = $200.200) Allocated OH $ 715.000. If fixed costs are projected at $100. $25.000) = 20% .000 ANS: A If sales price per unit is increased by 10 percent.000/5. The following information pertains to Saturn Company’s cost-volume-profit relationships: Break-even point in units sold Variable costs per unit Total fixed costs How much will be contributed to profit before taxes by the 1. 60 percent ANS: B Fixed Costs=Contribution Margin at Breakeven Point = $100.545 d. 5.000 b. less units will have to be sold to generate gross revenues of $200. $34.100.Unique Company manufactures a single product.000 = $1.000 to buy the part. 80 percent b.000 ANS: D Profit + Fixed Cost = (100. the total product cost per unit assigned to Product A will be a. variable costs of $50. d.000 32.25. 40 percent d. $150. $2. Knox Company would be better off by a. ANS: B 27. d.000 units in the coming period. If Knox buys the part. b. and profit at $500. 80 percent.00 Total $ 111.32. the CM ratio at 60 percent.600.000 Breakeven Sales: $500. $50.400. however total sales are expected to increase by 20 percent.000 units = $40/unit $40/unit * 1.44 30.000. 50 percent.000 Assume that Ledbetter increases the selling price of Product A by 10 percent in July. $115. What is the firm budgeting for fixed costs in the coming period? a.000 Total OH $ 780.000 Total OH $ 780. $0 ANS: C Fixed Cost = Contribution Margin = $150. $650 b. $1.33 Units Produced 8000 OH per Unit $ 89. $115. None of the responses are correct.000 units of its sole product in the coming period.50 DM and DL/Unit $ 35. the company had sales of $90. In the prior year.60.596.000. the total product cost per unit assigned to Product B will be a.200) Allocated OH $ 64.000 Contribution Margin/Unit = Contribution Margin/Units $150.917431193 (80.000 units of Product A for June: Sales Variable costs Fixed costs Operating income $200. 4. direct labor.000 units * $60/unit CM) Fixed Cost = (100.000.400.Refer to Smithson Company If total overhead is assigned to A and B on the basis of overhead activity hours used.000 Cost to manufacture: $(12+25+13+9)= $59/unit Incremental difference in favor of buying: $4/unit * 10.000 units of a part in its production process.
combs have a contribution margin of $2.000 Net profit: $(40.50 Direct Labor 10.000 (350. b.20 = $48. 320.000 units of product.000.000 hours of machine time each month to manufacture its two products.000 $( 155.50 ===== 36. ANS: C Sales foregone COGS avoided Variable Fixed Selling Expense Avoided Administrative Expense Avoided Decrease in income 37.000) $ 200. d.000.000. $200.000 units? Assuming that there would be no commission on this potential sale.000) $ (150. Division R's income statement shows the following for the year ended December 31: Sales Cost of goods sold Gross profit Selling expenses Administrative expenses Net loss $1. $4.30.Glamorous Grooming Corporation makes and sells brushes and combs. All of the selling expenses relate to the division and would be eliminated if Division R were eliminated. b.000.000. and T. b.000 brushes and 0 combs b.05 34.000) = $10.000 .00 Variable Selling Exp 1. The sales manager has received a special order for 5. decrease by $155. decrease by $ 75. direct labor.000 = 80% 33.000) $600. $250. d. $240.000) Cost of goods sold is 75 percent variable and 25 percent fixed. $3. S.00 Variable Overhead 3.00 0.630 brushes and 252. c.00 Sales price/unit $23.000 hrs/8 hrs per unit 4.50 $34.000 Increase in profit $8.000 brushes and 0 combs provides a net profit of $340. What sales mix will maximize profits? a.000 pairs of military combat boots to the Armed Forces. Direct materials $ 4.000. 90 percent are applied from corporate costs.000. If Paulson Company wants to dedicate 80 percent of its machine time to the product that will provide the most income.000.000.00 2. Product X has a contribution margin of $50. b.000 * 1.30.000.000 .000 hrs/5 hrs per unit Y: 5. If Division R were eliminated. The company's costs per pair of boots are as follows: Direct material Direct labor Variable overhead Variable selling cost (commission) Fixed overhead (allocated) Fixed selling and administrative cost $8 6 3 3 2 1 720. d. Houston Footwear Corporation has been asked to submit a bid on supplying 1. the lowest price the firm can bid is some price greater than a. thereby lowering the price per unit by $1.000 or $5 per unit. If Thomas wants this special order to increase the total net income for the firm to $10. increase by $150. $23. c. 160.000.000.Paulson Company has only 25. Costs associated with the product are: direct material.000 100.65 per unit.000) ========= 35.Contribution margin: $40.50 per unit. and variable selling expenses. decrease by $215.000 combs c.000 120.000.000 Brushes have a contribution margin of $8. ANS: B Assume 80% of capacity applied to Product X X: 20. d. Of the fixed costs. $17.Doyle Company has 3 divisions: R.50 $27. $23.10 0. $6.20 0.000) = $18.000 $100. Doyle’s income would a.50 Additional profit per unit 5. Thomas Company is currently operating at a loss of $15.000 $240.000 25. the company will have a total contribution margin of a. The company has 40.00 Production Costs $18.000 units * $50 CM/unit 625 units * $64 CM/unit Total $200. The special order would allow the use of a slightly lower grade of direct material. and Product Y requires 8 hours of machine time.50 and selling expenses would be decreased by $1.50 $24.000 combs d. $210. applied fixed overhead.000 machine hours available for production. .00 $1.00 $8.000 40. c. there must be an increase of $25. $(1.000 250.000. 60 percent are avoidable if the division is closed.000 (800. variable overhead. $14.630 combs ANS: A 8 $12.50 Combs 20 $4. $20.000 brushes and 600. Product X requires 5 hours of machine time. The following data are pertinent to each respective product: Brushes Units of output per machine hour Selling price per unit Product cost per unit Direct material Direct labor Variable overhead Total fixed overhead is $380. what sales price must be quoted for each of the 5. $10.00 $1. 0 brushes and 800. and Product Y has a contribution margin of $64.000. The combination of 320.000/$10.000 20% CM increase: $40. $2. 252. which normally sells for $35 per unit.000 Net profit: $(48.000 a. It can sell all of either product it can make. Of the administrative expenses.000 ====== ANS: A In order to increase income to $10. c.
11% c. b.000/2) = 30% Refer to Rhodes Corporation.Budgeted sales for the first six months for Porter Corp. 13% ANS: B NPV = $ 57.75 corresponds to a rate of 10. a.000/$2. It has an expected life of six years. Information on the existing machine and the new model follows: Existing machine Original cost Market value now Market value in year 5 Annual cash operating costs Remaining life 38.0% 10. c.058 b. between 12.$2. between 13.000 MARCH 8.000 FEBRUARY 7.000 = 4.000.2305 PV of Annuity Constant At 6 years.ANS: C The lowest price would have to be greater than the sum of all variable manufacturing costs. and is expected to generate annual cost savings of $250. What is the internal rate of return on this project (round to the nearest 1/2%)? Present value tables or a financial calculator are required. ANS: A 39.5% ANS: C IRR = $30.057.000 = 1. and requires an initial investment of $5. Given a cost of goods sold of 60 percent of sales. 35 percent.625.000 . c. The constant of 3.000 $1. 1. the accounting rate of return would be a. the constant corresponds to a discount rate of 11%. 10 percent. 5.5 and 13. 15 percent.000 5 yrs. For this machine. are listed below: JANUARY UNITS: 6.000 = 2.000 .000 cost of the new machine.50 b. between 11.000. what is the payback period in years? a. Based on Rhodes Corporation's analysis.000. therefore the price would have to be greater than $17 per pair. 2. between 11. a.000 Net cash flow = $2. $20.000 Using the Present Value of Annuity Table for 6 years.945 d. 1.5% and 13% 45.000 machine that is expected to result in a decrease of $15.000 Refer to Webber Corporation.000 MAY 5.000 in annual revenues. What is the project's profitability index? a.000 = 4. which has no residual value. lost sales resulting from the inefficient existing machine. d.000/($100. Information on this machine follows: Cost Salvage value in five years Estimated life Annual depreciation Annual reduction in existing costs 41. 30 percent. b. Moderate OBJ: 14-3 Refer to Richmond Steel Corporation.000 10. ANS: C $15.000 / $8.5 percent c. $200.5 and 12.000.057. 12% d.000 JUNE 4.000 $8.000 in fixed costs per year.000.625 Annual Cost Savings =$ 250. the project has a net present value of $57.000 per year in cash expenses. 2. d. has an estimated useful life of 10 years and will be depreciated on a straight-line basis. An investment project is expected to yield $10. New machine $400. 1.0 percent d. a.0 and 11.$6.625/$250.000 PV of Cash Inflows = $1. Variable manufacturing costs total $17.000 of annual savings in operating costs.50 years Webber Corporation is considering an investment in a labor-saving machine.75 Using PV of Annuity Table 5 years. with no salvage value. 42.625 Initial Cost = $1.000 APRIL 7. Datasoft Industries is considering the purchase of a $100. 10% b.000 5 yrs.5% Rhodes Corporation Rhodes Corporation is involved in the evaluation of a new computer-integrated manufacturing system.00 d. .5% .000 20.000 80. $30. Richmond Steel Corporation The capital budgeting committee of the Richmond Steel Corporation is evaluating the possibility of replacing its old pipe-bending machine with a more advanced model.000 0 40. $400.5% 13.000.000 = 3.000 $5. 37. What is the project's internal rate of return? Present value tables or a financial calculator are required. b.000 Refer to Rhodes Corporation. DIF: 43.057.0 and 13.00 c. Net cash flow = $10.000 $0 5 years $6.000 of salvage in 5 years on the new machine.000/$250.5 percent ANS: A $1. . $30. The major opportunity cost associated with the continued use of the existing machine is a.000.058 c. The system has a projected initial cost of $1.000 ANS: A PI = $1.0 percent b. has $2. 25. Refer to Rhodes Corporation. d.25 ANS: A 44. the rate falls between 12. c.058 DIF: Moderate OBJ: 14-3 40. What discount rate did the company use to compute the net present value? Present value tables or a financial calculator are required. This machine.625/1.
000 units c. and 14 percent in the second month after the month of sale. 416.400 b. The projected beginning and ending materials inventory for May are: Beginning inventory: 2.000 Edwards expected sales for June are $150. 9.000 b. plans to produce 6. 410.000 MARCH 32.000 ANS: C Ending inventory--May Production needs: 200.600 $148. How many lbs.000 lbs. of material should be purchased during May? a.Production of Product X has been budgeted at 200. of raw material.000.000 units for May. what quantity of production should be scheduled for February? a. One unit of X requires 2 lbs.000 units in June.000 units 46.600 d.700 units c. February February Sales Requirements for Month Less Beginning Inventory.700 units 47. 25.500) units units units units 25.000 units d. $127.Edwards Company has the following expected pattern of collections on credit sales: 70 percent collected in the month of sale.000 28.000) lbs.000 * 70%) May sales (160.600 units (4.000 units d. Ending inventory: 10. February Production scheduled for February 3.600 units 3.200 25.000 lbs.Porter Corp.000) units Ending inventory for June 3.000 FEBRUARY 25. $152. If Porter Corp.000 * 15%) April sales (140.000 lbs. 208.000 * 14%) Total cash collections--June $105.300 units b.000 c.700 units ANS: D Ending Inventory.000 * 40%) Produced in June 6.000 units ANS: C Beginning Inventory for June 1. 8.000 c.000 d.Budgeted sales for Knox Inc.000 24. Edwards Company has the following accounts receivable balances: From April sales From May sales $21.000 lbs. for the first quarter the year are shown below: JANUARY UNITS: 35. $148.000 lbs. 3. 408. 15 percent in the month after the month of sale. The remaining 1 percent is never collected.000 48.000 units Deduct: June sales (4.000 19.000 lbs. 48. Assuming that the company follows this policy.600 units b.000 units * 2 lbs/unit Inventory needed Beginning inventory--May Total purchase requirements 10. At the end of May. 24.40 = 9. what are budgeted sales for July? a. 1. has a policy of maintaining an inventory of finished goods equal to 40 percent of the next month's budgeted sales. 24. 25. 400. (2.600 The company has a policy that requires the ending inventory in each period to be 10 percent of the following period's sales. 408. $129. 192. How much cash will Edwards Company expect to collect in June? a.520 ANS: C June sales ($150.000 .200 (2.600/0.
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