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A company that wants to avoid significant investment in plant and equipment will most likely use a _________ strategy.

a. make b. buy c. allocation

Product 1 has a contribution margin per unit of $10.00 and uses 7 lbs. of material. Product 2 has a contribution margin per unit of $14.00 and uses 10 lbs. of material. Product 3 has a contribution margin per unit of $4.00 and uses 2 lbs. of material. The company was only able to acquire 850 lbs. of materials. In what order should the company accept orders for products?

a. 2-1-3 b. 1-2-3 c. 3-1-2 d. 1-3-2

A company finances most of its assets with an operating line of credit. The interest rate on the line of credit is 9%. Which of the following is most accurate?

a. The company's cost of capital is zero. b. The company's cost of capital is at least 9%. c. The company's cost of capital is less than 9%.

Most companies use the _________ method when constructing the statement of cash flows for external reports.

a. operating b. indirect c. variable d. direct

In order to accept a project the projects return should be less than the company's discount rate.

True or False When comparing a rare book store to Barnes and Noble, which would most likely have a higher inventory turnover ratio?

a. Barnes and Noble b. Rare book store

Smith Co. currently makes 10,000 units of widget A each year. At this level of activity the cost per unit is as follows: Direct materials - $2.50 Direct labor - $7.25 Overhead allocation - $1.25 Jones Co. offers to sell widget A for $10.00 per unit. If Smith Co. decides to buy from Jones Co. they can sublease their production space in the plant for $7,500 per year. Should they make or buy widget A?

a. Buy b. Make

Shane is considering buying a part rather than making it. What piece of information is least useful to Shane?

a. Supplier's proposed sales price b. Maintenance expense on production equipment c. Allocation of plant rent to the part d. Direct material per unit when produced

The statement of cash flows is required for external financial reporting.

True or False

If a company is most concerned with the collection time on their credit sales they will most likely focus on which ratio?

a. Gross margin percentage b. Acid test ratio c. Average collection period d. Inventory turnover ratio

Which of the following most likely explains why a company would have positive net income but negative cash flows from operating activities?

a. Purchase of equipment b. Large repayments of long-term debt c. Large dividend payments to stockholders d. Lenient collection policies on accounts receivable

The sofa pillow line at Pillows, Inc. has an annual contribution margin of $100,000. Fixed expenses related to the line are advertising of $40,000, depreciation due to obsolesence of $25,000, pillow production line manager salary of $35,000, and general factory overhead of $10,000 for a net operating loss of $10,000. If Pillow, Inc. decides to discontinue the sofa pillow line, what will be the net effect to the company's net income?

a. Decrease by $25,000 b. Increase by $10,000 c. Increase by $110,000 d. No effect

Joe lost a wager to Sam. Joe now owes Sam $100. Joe offers to pay Sam $100 today or $130 in 5 years. Sam's discount rate is 5%. Which option should Sam select? (ignore Joe's credit worthiness and use pages 677 or 678 from the text to solve)

a. $130 in 5 years

b. $100 today

If a company makes a large purchase of factory equipment it will be classified as a(n) ________ activity on the statement of cash flows.

a. operating b. financing c. investing

A creditor typically prefers that a company that owes them money have a high debt to equity ratio.

True or False

A creditor interested in determining if a company will be able to pay its obligations in the upcoming year will most likely calculate which ratio?

a. Account receivable turnover ratio b. Current ratio c. Inventory turnover ratio d. Debt to equity ratio

Franklin Corp. has sales of $100,000, cost of goods sold of $72,000, selling and administrative expenses of $20,000, and net income of $8,000. What is their gross margin percentage?

a. 28% b. 20% c. 8% d. 80%

Smith Corp. has the opportunity to purchase equipment for $40,000. This equipment will allow it to generate additional cash inflows of $10,000 per year for 5 years. After 5 years the equipment will have no salvage value. The company's discount rate is 8%. Should the company purchase the equipment?

a. Yes b. No

Which of the following would not effect a company's cost of capital?

a. Return expected by stockholders b. The cost of a project c. Interest rate paid to lenders

Managerial Accounting is ___________.

a. fun

b. exciting c. life changing d. All of the above. Have a nice summer and please fill out the course evaluation.