Final

MANAGERIAL ACCOUNTING – X122 MID-TERM

1. Purchase order processing is an example of a: A. Unit-level activity.B. Batch-level activity.C. Product-level activity.D. Organization-sustaining activity. 2. Rank the following methods of assigning overhead costs from least accurate to most accurate. A. departmental rates, plantwide rate, activity-based costingB. plantwide rate, departmental rates, activity-based costingC. plantwide rate, activity-based costing, departmental ratesD. activity-based costing, departmental rates, plantwide rateE. activity-based costing, plantwide rate, departmental rates 3. Overhead allocation based solely on a measure of volume such as direct labor-hours: A. is a key aspect of the activity-based costing model.B. will systematically overcost high-volume products and undercost low-volume products.C. will systematically overcost low-volume products and undercost high-volume products.D. must be used for external financial reporting. 4. Arranging for a shipment of a number of different products to a customer is an example of an activity at which of the following levels? A. Unit-level activity.B. Batch-level activity.C. Customer-level activity.D. Organization-sustaining activity.

5. Testing a prototype of a new product is an example of a: A. Unit-level activity.B. Batch-level activity.C. Product-level activity.D. Organization-sustaining activity. 6. Setting up equipment is an example of a: A. Unit-level activity.B. Batch-level activity.C. Product-level activity.D. Organization-sustaining activity. 7. The clerical activity associated with processing purchase orders to produce an order for a standard product is an example of a: A. Unit-level activity.B. Batch-level activity.C. Product-level activity.D. Organization-sustaining activity. 8. Worker recreational facilities is an example of a cost that would ordinarily be considered to be: A. Unit-level.B. Batch-level.C. Product-level.D. Organization-sustaining.

1 OF 37


Lifsey Wedding Fantasy Company makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activity-based costing system:

The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake. The measure of complexity is the number of tiers in the cake. The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately.Data concerning two recent orders appear below:

2 OF 37


9. Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, what amount would the company have to charge for the Pyburn wedding cake to just break even? A. $279.87B. $55.79C. $29.92D. $338.64

10. Assuming that the company charges $556.96 for the Smith wedding cake, what would be the overall margin on the order? A. $152.45B. $96.66C. $460.30D. $165.41

11. Suppose that the company decides that the present activity-based costing system is too complex and that all costs (except for the costs of purchased decorations) should be allocated on the basis of the number of guests. In that event, what would you expect to happen to the costs of cakes? A. The cost of cakes for receptions with more than the average number of guests would go down.B. The costs of all cakes would go up.C. The cost of cakes for receptions with fewer than the average number of guests would go down.D. The costs of all cakes would go down.

3 OF 37


12. Daniele Corporation uses an activity-based costing system with the following three activity cost pools:

The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs.The company has provided the following data concerning its costs:

The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Fabrication activity cost pool is closest to: A. $3.72 per machine-hourB. $4.44 per machine-hourC. $7.44 per machine-hourD. $1.24 per machine-hour

4 OF 37


13. Lippincott Corporation uses an activity-based costing system with the following three activity cost pools:

The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs.The company has provided the following data concerning its costs:

The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Order Processing activity cost pool is closest to: A. $1,050 per orderB. $1,680 per orderC. $1,190 per orderD. $1,350 per order

5 OF 37


14. Whiting Corporation has provided the following data concerning its overhead costs for the coming year:

The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:

The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs.The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Assembly activity cost pool is closest to: A. $4.30 per labor-hourB. $7.00 per labor-hourC. $8.60 per labor-hourD. $12.90 per labor-hour

6 OF 37


15. Cuna Corporation has provided the following data concerning its overhead costs for the coming year:

The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:

The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs.The distribution of resource consumption across activity cost pools is given below:

The activity rate for the Order Processing activity cost pool is closest to: A. $905 per orderB. $630 per orderC. $1,080 per orderD. $840 per order

7 OF 37


16. Kassabian Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

How much cost, in total, would be allocated in the first-stage allocation to the Assembly activity cost pool? A. $314,000B. $272,333C. $215,000D. $430,000

17. Emmette Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

How much cost, in total, would be allocated in the first-stage allocation to the Setting Up activity cost pool? A. $325,000B. $312,000C. $333,000D. $429,000

8 OF 37


18. Graney Corporation uses an activity-based costing system with three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

How much cost, in total, would be allocated in the first-stage allocation to the Other activity cost pool? A. $143,000B. $144,000C. $108,000D. $135,000

Toma Nuptial Bakery makes very elaborate wedding cakes to order. The company has an activity-based costing system with three activity cost pools. The activity rate for the Size-Related activity cost pool is $1.14 per guest. (The greater the number of guests, the larger the cake.) The activity rate for the Complexity-Related cost pool is $31.86 per tier. (Cakes with more tiers are more complex.) Finally, the activity rate for the Order-Related activity cost pool is $59.66 per order. (Each wedding involves one order for a cake.) The activity rates include the costs of raw ingredients such as flour, sugar, eggs, and shortening. The activity rates do not include the costs of purchased decorations such as miniature statues and wedding bells, which are accounted for separately. Data concerning two recent orders appear below:

9 OF 37


19. Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, what amount would the company have to charge for the Zedian wedding cake to just break even? A. $247.60B. $18.55C. $59.66D. $204.63

20. Assuming that the company charges $458.08 for the Towry wedding cake, what would be the overall margin on the order? A. $106.76B. $79.50C. $139.16D. $378.58

21. The materials purchase budget: A. is the beginning point in the budget process.B. must provide for desired ending inventory as well as for production.C. is accompanied by a schedule of cash collections.D. is completed after the cash budget.

22. The budget or schedule that provides necessary input data for the direct labor budget is the: A. raw materials purchases budget.B. production budget.C. schedule of cash collections.D. cash budget.

23. Which of the following budgets are prepared before the sales budget?

A. Choice AB. Choice BC. Choice CD. Choice D

24. The master budget process usually begins with the: A. production budget.B. operating budget.C. sales budget.D. cash budget.

10 OF 37


25. The cash budget must be prepared before you can complete the: A. production budget.B. budgeted balance sheet.C. raw materials purchases budget.D. schedule of cash disbursements. 26. Which of the following is not a benefit of budgeting? A. It uncovers potential bottlenecks before they occur.B. It coordinates the activities of the entire organization by integrating the plans and objectives of the various parts.C. It ensures that accounting records comply with generally accepted accounting principles.D. It provides benchmarks for evaluating subsequent performance.

27. The concept of responsibility accounting means that: A. Budgetary data should be reviewed and approved by the budget committee.B. Budgetary data should be reviewed and approved by all levels of management.C. An employee's performance should be evaluated only on those items under his or her control.D. An employee's performance should be evaluated only by his or her immediate supervisor.

28. Fairmont Inc. uses an accounting system that charges costs to the manager who has been delegated the authority to make decisions concerning the costs. For example, if the sales manager accepts a rush order that will result in higher than normal manufacturing costs, these additional costs are charged to the sales manager because the authority to accept or decline the rush order was given to the sales manager. This type of accounting system is known as: A. responsibility accounting.B. contribution accounting.C. absorption accounting.D. operational budgeting. 29. A self-imposed budget or ________________ budget is a budget that is prepared with the full cooperation of managers at all levels. A. perpetualB. masterC. participativeD. responsibility

11 OF 37


30. There are various budgets within the master budget. One of these budgets is the production budget. Which of the following BEST describes the production budget? A. It details the required direct labor hours.B. It details the required raw materials purchases.C. It is calculated based on the sales budget and the desired ending inventory.D. It summarizes the costs of producing units for the budget period.

31. The excess or deficiency of cash available over disbursements on the cash budget is calculated as follows: A. The beginning balance less the expected cash receipts less the expected cash disbursements.B. The cash available less the expected cash receipts plus the expected cash disbursements.C. The beginning balance plus the expected cash receipts less the expected cash disbursements.D. None of these.

32. Parlee Company's sales are 30% in cash and 70% on credit. Sixty % of the credit sales are collected in the month of sale, 25% in the month following sale, and 12% in the second month following sale. The remainder are uncollectible. The following are budgeted sales data:

Total cash receipts in April would be budgeted to be: A. $38,900B. $47,900C. $27,230D. $36,230

12 OF 37


33. The PDQ Company makes collections on credit sales according to the following schedule:

25% in month of sale70% in month following sale4% in second month following sale1% uncollectible

The following sales have been budgeted:

Cash collections in June would be: A. $113,400B. $110,000C. $111,000D. $115,500 34. Tolla Company is estimating the following sales for the first six months of next year:

Sales at Tolla are normally collected as 70% in the month of sale, 25% in the month following the sale, and the remaining 5% being uncollectible. Also, those customers paying in the month of sale are given a 2% discount. Based on this information, how much cash should Tolla expect to collect during the month of April? A. $281,260B. $361,260C. $366,010D. $393,760

13 OF 37


35. Orion Corporation is preparing a cash budget for the six months beginning January 1. Shown below are the company's expected collection pattern and the budgeted sales for the period. Expected collection pattern:65% collected in the month of sale20% collected in the month after sale10% collected in the second month after sale4% collected in the third month after sale1% uncollectibleBudgeted sales:

The estimated total cash collections during April from sales and accounts receivables would be: A. $155,900B. $167,000C. $171,666D. $173,400 36. Pardee Company plans to sell 12,000 units during the month of August. If the company has 2,500 units on hand at the start of the month, and plans to have 2,000 units on hand at the end of the month, how many units must be produced during the month? A. 11,500B. 12,500C. 12,000D. 14,000

37. Modesto Company produces and sells Product AlphaB. To guard against stockouts, the company requires that 20% of the next month's sales be on hand at the end of each month. Budgeted sales of Product AlphaB over the next four months are:

Budgeted production for August would be: A. 62,000 unitsB. 70,000 unitsC. 58,000 unitsD. 50,000 units

14 OF 37


38. Friden Company has budgeted sales and production over the next quarter as follows:

The company has 20,000 units of product on hand at April 1. A minimum of 20% of the next month's sales needs in units must be on hand at the end of each month. July sales are expected to be 140,000 units. Budgeted sales for June would be (in units): A. 188,000B. 160,000C. 128,000D. 184,000

15 OF 37


Braston Corporation is a small wholesaler of gourmet food products. Data regarding the store's operations follow:

• Sales are budgeted at $350,000 for November, $330,000 for December, and $340,000 for January.• Collections are expected to be 70% in the month of sale, 26% in the month following the sale, and 4% uncollectible.• The cost of goods sold is 70% of sales.• The company purchases 50% of its merchandise in the month prior to the month of sale and 50% in the month of sale. Payment for merchandise is made in the month following the purchase.• Other monthly expenses to be paid in cash are $20,100.• Monthly depreciation is $22,000.• Ignore taxes.

39. Expected cash collections in December are: A. $91,000B. $330,000C. $322,000D. $231,000

40. The cost of December merchandise purchases would be: A. $231,000B. $119,000C. $245,000D. $234,500

41. December cash disbursements for merchandise purchases would be: A. $119,000B. $234,500C. $231,000D. $238,000

16 OF 37


42. The excess (deficiency) of cash available over disbursements for December would be: A. $20,200B. $107,600C. $43,700D. $63,900

43. A flexible budget: A. classifies budget requests by activity and estimates the benefits arising from each activity.B. presents a statement of expectations for a period of time but does not present a firm commitment.C. presents the plan for only one level of activity and does not adjust to changes in the level of activity.D. presents the plan for a range of activity so that the plan can be adjusted for changes in activity levels. 44. A flexible budget is a budget that: A. is updated with actual costs as they occur during the period.B. is updated to reflect the actual level of activity during the period.C. is prepared using a computer spreadsheet application.D. contains only variable production costs. 45. Which of the following comparisons best isolates the impact that changes in prices of inputs and outputs have on performance? A. static planning budget and flexible budgetB. static planning budget and actual resultsC. flexible budget and actual resultsD. master budget and static planning budget

17 OF 37


46. Marchi Family Inn is a bed and breakfast establishment in a converted 100-year-old mansion. The Inn's guests appreciate its gourmet breakfasts and individually decorated rooms. The Inn's overhead budget for the most recent month appears below:

The Inn's variable overhead costs are driven by the number of guests. What would be the total budgeted overhead cost for a month if the activity level is 70 guests? A. $42,460.00B. $6,620.00C. $7,086.15D. $6,580.00

47. Barringer Manufacturing Corporation has prepared the following overhead budget for next month.

The company's variable overhead costs are driven by machine-hours. What would be the total budgeted overhead cost for next month if the activity level is 7,900 machine-hours rather than 7,800 machine-hours? A. $110,710.00B. $109,620.00C. $110,868.00D. $111,025.38

18 OF 37


48. Placek Hospital bases its budgets on patient-visits. The hospital's static budget for October appears below:

The total overhead cost at an activity level of 7,700 patient-visits per month should be: A. $129,550B. $121,720C. $129,100D. $137,830

49. Dike Hotel bases its budgets on guest-days. The hotel's static budget for June appears below:

The total overhead cost at an activity level of 8,400 guest-days per month should be: A. $159,440B. $149,650C. $160,430D. $172,200

50. Blackwelder Snow Removal's cost formula for its vehicle operating cost is $1,240 per month plus $348 per snow-day. For the month of December, the company planned for activity of 12 snow-days, but the actual level of activity was 14 snow-days. The actual vehicle operating cost for the month was $6,330. The vehicle operating cost in the planning budget for December would be closest to: A. $5,426B. $6,112C. $5,416D. $6,330

19 OF 37


51. Ofarrell Snow Removal's cost formula for its vehicle operating cost is $1,840 per month plus $377 per snow-day. For the month of November, the company planned for activity of 14 snow-days, but the actual level of activity was 19 snow-days. The actual vehicle operating cost for the month was $9,280. The vehicle operating cost in the flexible budget for November would be closest to: A. $9,003B. $7,118C. $9,280D. $9,660 52. Guilbault Midwifery's cost formula for its wages and salaries is $2,340 per month plus $154 per birth. For the month of June, the company planned for activity of 115 births, but the actual level of activity was 112 births. The actual wages and salaries for the month was $19,530. The wages and salaries in the planning budget for June would be closest to: A. $19,530B. $19,588C. $20,053D. $20,050

53. Dewberry Midwifery's cost formula for its wages and salaries is $1,960 per month plus $429 per birth. For the month of December, the company planned for activity of 128 births, but the actual level of activity was 130 births. The actual wages and salaries for the month was $56,020. The wages and salaries in the flexible budget for December would be closest to: A. $57,761B. $57,730C. $56,020D. $56,872

54. Entler Framing's cost formula for its supplies cost is $2,250 per month plus $16 per frame. For the month of June, the company planned for activity of 502 frames, but the actual level of activity was 497 frames. The actual supplies cost for the month was $10,580. The supplies cost in the planning budget for June would be closest to: A. $10,580B. $10,282C. $10,686D. $10,202

Lauter Printing uses two measures of activity, press runs and book set-ups, in the cost formulas in its budgets and performance reports. The cost formula for wages and salaries is $5,300 per month plus $480 per press run plus $1,080 per book set-up. The company expected its activity in October to be 169 press runs and 64 book set-ups, but the actual activity was 167 press runs and 60 book set-ups. The actual cost for wages and salaries in October was $155,690.

55. The wages and salaries in the planning budget for October would be closest to: A. $157,555B. $155,690C. $150,260D. $155,540

20 OF 37


56. The wages and salaries in the flexible budget for October would be closest to: A. $155,540B. $155,690C. $150,260D. $153,699

57. The activity variance for wages and salaries in October would be closest to: A. $5,280 UB. $150 UC. $150 FD. $5,280 F

58. The spending variance for wages and salaries in October would be closest to: A. $5,430 UB. $150 UC. $5,430 FD. $150 F

Spraque Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports. The cost formula for plane operating costs is $40,520 per month plus $2,733 per flight plus $11 per passenger. The company expected its activity in June to be 71 flights and 207 passengers, but the actual activity was 70 flights and 205 passengers. The actual cost for plane operating costs in June was $239,580.

59. The plane operating costs in the planning budget for June would be closest to: A. $239,580B. $236,840C. $234,085D. $243,003

60. The plane operating costs in the flexible budget for June would be closest to: A. $233,504B. $234,085C. $239,580D. $236,840

61. The activity variance for plane operating costs in June would be closest to: A. $2,755 UB. $2,755 FC. $2,740 FD. $2,740 U

62. The spending variance for plane operating costs in June would be closest to: A. $2,740 UB. $5,495 UC. $5,495 FD. $2,740 F

21 OF 37


63. The standards that allow for no machine breakdowns or other work interruptions and that require peak efficiency at all times are referred to as: A. normal standards.B. practical standards.C. ideal standards.D. budgeted standards.

64. Which of the following statements concerning practical standards is incorrect? A. Practical standards can be used for product costing and cash budgeting.B. Practical standards can be attained by the average worker.C. When practical standards are used, there is no reason to adjust standards if an old machine is replaced by a newer, faster machine.D. Under practical standards, large variances are less likely than under ideal standards.

65. The general model for calculating a quantity variance is: A. actual quantity of inputs used x (actual price - standard price).B. standard price x (actual quantity of inputs used - standard quantity allowed for output).C. (actual quantity of inputs used at actual price) - (standard quantity allowed for output at standard price).D. actual price x (actual quantity of inputs used - standard quantity allowed for output).

66. An unfavorable materials quantity variance indicates that: A. actual usage of material exceeds the standard material allowed for output.B. standard material allowed for output exceeds the actual usage of material.C. actual material price exceeds standard price.D. standard material price exceeds actual price.

67. The materials price variance should be computed: A. when materials are purchased.B. when materials are used in production.C. based upon the amount of materials used in production when only a portion of materials purchased is actually used.D. based upon the difference between the actual quantity of inputs and the standard quantity allowed for output times the standard price.

68. A favorable materials price variance coupled with an unfavorable material usage variance would MOST likely result from: A. problems with processing machines.B. the purchase of low quality materials.C. problems with labor efficiency.D. changes in the product mix.

69. Under a standard cost system, the materials price variances are usually the responsibility of the: A. production manager.B. sales manager.C. purchasing manager.D. engineering manager.

22 OF 37


70. A labor efficiency variance resulting from the use of poor quality materials should be charged to: A. the production manager.B. the purchasing agent.C. manufacturing overhead.D. the engineering department.

71. A favorable labor rate variance indicates that A. actual hours exceed standard hours.B. standard hours exceed actual hours.C. the actual rate exceeds the standard rate.D. the standard rate exceeds the actual rate.

72. If the actual labor hours worked exceed the standard labor hours allowed, what type of variance will occur? A. Favorable labor efficiency variance.B. Favorable labor rate variance.C. Unfavorable labor efficiency variance.D. Unfavorable labor rate variance.

73. If variable overhead is applied on the basis of direct labor-hours and the variable overhead rate variance is favorable, then: A. actual variable overhead rate exceeded the standard rate.B. standard variable overhead rate exceeded the actual rate.C. actual direct labor-hours exceeded the standard direct labor-hours allowed for the actual output.D. standard direct labor-hours allowed for the actual output exceeded the actual hours.

74. Which of the following represents value-added time in the manufacturing cycle? A. Inspection Time.B. Queue Time.C. Move Time.D. Process Time.

75. Manufacturing Cycle Efficiency (MCE) is computed as: A. Throughput Time Delivery Cycle TimeB. Process Time Delivery Cycle TimeC. Value-Added Time Throughput TimeD. Value-Added Time Delivery Cycle Time

76. Misemer Corporation is developing standards for its products. One product requires an input that is purchased for $57.00 per kilogram from the supplier. By paying cash, the company gets a discount of 8% off this purchase price. Shipping costs from the supplier's warehouse amount to $3.60 per kilogram. Receiving costs are $0.26 per kilogram. The standard price per kilogram of this input should be: A. $57.70B. $56.30C. $65.42D. $57.00

23 OF 37


77. Mcgann Corporation is developing standards for its products. Each unit of output of the product requires 0.53 kilogram of a particular input. The allowance for waste and spoilage is 0.06 kilogram of this input for each unit of output. The allowance for rejects is 0.12 kilogram of this input for each unit of output. The standard quantity in kilograms of this input per unit of output should be: A. 0.53B. 0.35C. 0.71D. 0.47

78. Daughdrill Corporation is developing direct labor standards. The basic direct labor wage rate is $10.95 per hour. Employment taxes are 9% of the basic wage rate. Fringe benefits are $4.00 per direct labor-hour. The standard rate per direct labor-hour should be: A. $5.96B. $4.99C. $10.95D. $15.94

79. Cox Company's direct material costs for the month of January were as follows:

For January there was a favorable direct materials quantity variance of: A. $3,360B. $3,375C. $3,400D. $3,800

24 OF 37


80. The following materials standards have been established for a particular product:

The following data pertain to operations concerning the product for the last month:

What is the materials quantity variance for the month? A. $15,240 UB. $6,350 UC. $14,340 UD. $5,975 U

81. The following materials standards have been established for a particular product:

The following data pertain to operations concerning the product for the last month:

What is the materials price variance for the month? A. $14,850 UB. $8,250 UC. $8,640 UD. $2,860 F

82. The Fletcher Company uses standard costing. The following data are available for October:

The standard quantity of material allowed for October production is: A. 23,000 poundsB. 24,000 poundsC. 24,500 poundsD. 25,000 pounds

25 OF 37


83. For which of the following decisions are opportunity costs relevant?


84. Which of the following costs are always irrelevant in decision making? A. avoidable costsB. sunk costsC. opportunity costsD. fixed costs

85. For which of the following decisions are sunk costs relevant? A. the decision to keep an old machine or buy a new one.B. the decision to sell a product at the split-off point or after further processing.C. the decision to accept or reject a special order offer.D. all of these.E. none of these.

86. The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is: A. the variable manufacturing cost of the component.B. the total manufacturing cost of the component.C. the fixed manufacturing cost of the component.D. zero.

87. Allocated common fixed costs: A. can make a product line appear to be unprofitable.B. are always incremental costs.C. are always relevant in decisions involving dropping a product line.D. responses A, B, and C are all correct.

26 OF 37


88. In deciding whether to manufacture a part or buy it from an outside supplier, which of the following costs are irrelevant?


89. Consider a decision facing a company of either accepting or rejecting a special offer for one of its products. A cost that is not relevant is: A. direct materials.B. variable overhead.C. fixed overhead that will be avoided if the special offer is accepted.D. common fixed overhead that will continue if the special offer is not accepted.

90. Which product would be selected in a decision that involves the utilization of a constrained resource? A. the product with the lowest total cost per unit.B. the product with the lowest variable cost per unit.C. the product that uses the least amount of constrained resource per unit.D. the product with the highest contribution margin per unit.E. the product with the highest contribution margin per unit of the constrained resource.

91. In a plant operating at capacity: A. every machine and person in the plant is working at the maximum possible rate.B. only some specific machines or processes are operating at the maximum rate possible.C. profits are maximized.D. managers should produce those products with the highest contribution margin in order to deal with the constrained resource.

92. United Industries manufactures a number of products at its highly automated factory. The products are very popular, with demand far exceeding the factory's capacity. To maximize profit, management should rank products based on their: A. gross marginB. contribution marginC. selling priceD. contribution margin per unit of the constrained resource

27 OF 37


93. Sheela Dairy Corporation buys unprocessed cows' milk from local farmers. At the dairy, this unprocessed milk is broken down into cream and low-fat milk. The cream can be sold at this point or can be further processed into butter. Which of the following would be relevant in the decision to further process the cream into butter? A. the amount paid to the farmers to purchase the unprocessed milk.B. the cost of breaking down the unprocessed milk into cream and low-fat milk.C. the portion of corporate fixed expenses that are currently being allocated to cream.D. none of these.

94. Consider the following statements: I. A vertically integrated company is more dependent on its suppliers than a company that is not vertically integrated.II. Many companies feel they can control quality better by making their own parts.III. A vertically integrated company realizes profits from the parts it is "making" instead of "buying" as well as profits from its regular operations.Which of the above statements represent advantages to a company that is vertically integrated? A. Only IB. Only IIIC. Only I and IID. Only II and III

95. Degner Inc. has some material that originally cost $19,500. The material has a scrap value of $13,300 as is, but if reworked at a cost of $2,100, it could be sold for $14,000. What would be the incremental effect on the company's overall profit of reworking and selling the material rather than selling it as is as scrap? A. -$20,900B. $11,900C. -$7,600D. -$1,400

96. Corado Corporation has in stock 77,000 kilograms of material N that it bought five years ago for $7.15 per kilogram. This raw material was purchased to use in a product line that has been discontinued. Material N can be sold as is for scrap for $4.50 per kilogram. An alternative would be to use material N in one of the company's current products, M01Y, which currently requires 2 kilograms of a raw material that is available for $7.15 per kilogram. Material N can be modified at a cost of $0.94 per kilogram so that it can be used as a substitute for this material in the production of product M01Y. However, after modification, 4 kilograms of material N is required for every unit of product M01Y that is produced. Corado Corporation has now received a request from a company that could use material N in its production process. Assuming that Corado Corporation could use all of its stock of material N to make product M01Y or the company could sell all of its stock of the material at the current scrap price of $4.50 per kilogram, what is the minimum acceptable selling price of material N to the company that could use material N in its own production process? A. $1.86B. $2.64C. $4.52D. $4.50

28 OF 37


97. Mcneilly Inc. is considering using stocks of an old raw material in a special project. The special project would require all 220 kilograms of the raw material that are in stock and that originally cost the company $1,804 in total. If the company were to buy new supplies of this raw material on the open market, it would cost $8.55 per kilogram. However, the company has no other use for this raw material and would sell it at the discounted price of $7.75 per kilogram if it were not used in the special project. The sale of the raw material would involve delivery to the purchaser at a total cost of $97.00 for all 220 kilograms. What is the relevant cost of the 220 kilograms of the raw material when deciding whether to proceed with the special project? A. $1,705B. $1,881C. $1,804D. $1,608

98. Knedler Corporation is preparing a bid for a special order that would require 720 liters of material C01D. The company already has 200 liters of this raw material in stock that originally cost $9.90 per liter. Material C01D is used in the company's main product and is replenished on a periodic basis. The resale value of the existing stock of the material is $9.60 per liter. New stocks of the material can be readily purchased for $10.10 per liter. What is the relevant cost of the 720 liters of the raw material when deciding how much to bid on the special order? A. $7,232B. $7,272C. $6,912D. $6,972

99. Lounsberry Inc. regularly uses material O55P and currently has in stock 360 liters of the material for which it paid $2,484 several weeks ago. If this were to be sold as is on the open market as surplus material, it would fetch $6.35 per liter. New stocks of the material can be purchased on the open market for $6.90 per liter, but it must be purchased in lots of 1,000 liters. You have been asked to determine the relevant cost of 800 liters of the material to be used in a job for a customer. The relevant cost of the 800 liters of material O55P is: A. $5,080B. $5,322C. $5,520D. $6,900

29 OF 37


100. Govoni Corporation is a specialty component manufacturer with idle capacity. Management would like to use its extra capacity to generate additional profits. A potential customer has offered to buy 9,500 units of component AIG. Each unit of AIG requires 6 units of material M51 and 4 units of material M93. Data concerning these two materials follow:

Material M51 is in use in many of the company's products and is routinely replenished. Material M93 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up.What would be the relevant cost of the materials, in total, for purposes of determining a minimum acceptable price for the order for product AIG? A. $505,667B. $502,550C. $458,850D. $464,550

101. Nowak Corporation is a specialty component manufacturer with idle capacity. Management would like to use its extra capacity to generate additional profits. A potential customer has offered to buy 1,600 units of component FHB. Each unit of FHB requires 8 units of material N95 and 1 unit of material K78. Data concerning these two materials follow:

Material N95 is in use in many of the company's products and is routinely replenished. Material K78 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up.

What would be the relevant cost of the materials, in total, for purposes of determining a minimum acceptable price for the order for product FHB? A. $65,658B. $61,279C. $62,135D. $64,160

30 OF 37


102. A study has been conducted to determine if one of the departments in Parry Company should be discontinued. The contribution margin in the department is $50,000 per year. Fixed expenses charged to the department are $65,000 per year. It is estimated that $40,000 of these fixed expenses could be eliminated if the department is discontinued. These data indicate that if the department is discontinued, the company's overall net operating income would: A. decrease by $25,000 per yearB. increase by $25,000 per yearC. decrease by $10,000 per yearD. increase by $10,000 per year

103. Vanikoro Corporation currently has two divisions which had the following operating results for last year:

Since the Rubber Division sustained a loss, the president of Vanikoro is considering the elimination of this division. All of the fixed costs for the division could be eliminated if the division was dropped. If the Rubber Division was dropped at the beginning of last year, how much higher or lower would Vanikoro's total net operating income have been for the year? A. $10,000 higherB. $40,000 lowerC. $50,000 higherD. $100,000 lower

104. The management of Austin Corporation is considering dropping product R97C. Data from the company's accounting system appear below:

In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $34,000 of the fixed manufacturing expenses and $20,000 of the fixed selling and administrative expenses are avoidable if product R97C is discontinued. What would be the effect on the company's overall net operating income if product R97C were dropped? A. Overall net operating income would increase by $20,000.B. Overall net operating income would increase by $10,000.C. Overall net operating income would decrease by $20,000.D. Overall net operating income would decrease by $10,000.

31 OF 37


105. A project profitability index greater than zero for a project indicates that: A. the discount rate is less than the internal rate of return.B. there has been a calculation error.C. the project is unattractive and should not be pursued.D. the company should reevaluate its discount rate.

106. In capital budgeting, what will be the effect on the following if there is an increase in the discount rate?

A. Choice AB. Choice BC. Choice CD. Choice DE. Choice E

107. (Ignore income taxes in this problem.) How is depreciation handled by the following capital budgeting techniques?


32 OF 37


108. Rennin Dairy Corporation is considering a plant expansion decision that has an estimated useful life of 20 years. This project has an internal rate of return of 15% and a payback period of 9.6 years. How would a decrease in the expected salvage value from this project in 20 years affect the following for this project?

A. Choice AB. Choice BC. Choice CD. Choice DE. Choice E

109. A weakness of the internal rate of return method for screening investment projects is that it: A. does not consider the time value of money.B. implicitly assumes that the company is able to reinvest cash flows from the project at the company's discount rate.C. implicitly assumes that the company is able to reinvest cash flows from the project at the internal rate of return.D. does not take into account all of the cash flows from a project.

110. Cresol Corporation has a large number of potential investment opportunities that are acceptable. However, Cresol does not have enough investment funds to invest in all of them. Which calculation would be the best one for Cresol to use to determine which projects to choose? A. payback periodB. simple rate of returnC. net present valueD. project profitability index

111. The payback method measures: A. how quickly investment dollars may be recovered.B. the cash flow from an investment.C. the economic life of an investment.D. the project profitability of an investment.

33 OF 37


112. An investment project that requires a present investment of $210,000 will have cash inflows of "R" dollars each year for the next five years. The project will terminate in five years. Consider the following statements (ignore income tax considerations): I. If "R" is less than $42,000, the payback period exceeds the life of the project.II. If "R" is greater than $42,000, the payback period exceeds the life of the project.III. If "R" equals $42,000, the payback period equals the life of the project.Which statement(s) is (are) true? A. Only I and II.B. Only I and III.C. Only II and III.D. I, II, and III.E. none of these.

113. The capital budgeting method that divides a project's annual incremental net operating income by the initial investment is the: A. internal rate of return method.B. the simple rate of return method.C. the payback method.D. the net present value method.

114. (Ignore income taxes in this problem.) Sue Falls is the president of Sports, Inc. She is considering buying a new machine that would cost $14,125. Sue has determined that the new machine promises an internal rate of return of 12%, but Sue has misplaced the paper which tells the annual cost savings promised by the new machine. She does remember that the machine has a projected life of 10 years. Based on these data, the annual cost savings are: A. It is impossible to determine from the data given.B. $1,412.50C. $2,500.00D. $1,695.00

115. (Ignore income taxes in this problem.) Joe Flubup is the president of Flubup, Inc. He is considering buying a new machine that would cost $25,470. Joe has determined that the new machine promises an internal rate of return of 14%, but Joe has misplaced the paper which tells the annual cost savings promised by the new machine. He does remember that the machine has a projected life of 12 years. Based on these data, the annual cost savings are: A. It is impossible to determine from the given data.B. $2,122.50C. $4,500.00D. $4,650.00

116. (Ignore income taxes in this problem.) Cuarto Corporation just invested in a project that has an internal rate of return of 24%. This project is expected to generate $44,000 of net cash inflows each year of its 6 year life. The project has no salvage value. What was the initial investment required for this project? A. $63,360B. $72,600C. $132,880D. $160,000

34 OF 37


117. (Ignore income taxes in this problem.) Highpoint, Inc., is considering investing in automated equipment with a ten-year useful life. Managers at Highpoint have estimated the cash flows associated with the tangible costs and benefits of automation, but have been unable to estimate the cash flows associated with the intangible benefits. Using the company's 10% discount rate, the net present value of the cash flows associated with just the tangible costs and benefits is a negative $184,350. How large would the annual net cash inflows from the intangible benefits have to be to make this a financially acceptable investment? A. $18,435B. $30,000C. $35,000D. $37,236

118. (Ignore income taxes in this problem.) Given the following data:

Based on the data given, the annual cost savings would be: A. $1,630.00B. $2,200.00C. $2,123.89D. $2,553.89

119. (Ignore income taxes in this problem.) Parks Company is considering an investment proposal in which a working capital investment of $10,000 would be required. The investment would provide cash inflows of $2,000 per year for six years. The working capital would be released for use elsewhere when the project is completed. If the company's discount rate is 10%, the investment's net present value is: A. $1,290B. $(1,290)C. $2,000D. $4,350

120. (Ignore income taxes in this problem.) Boston Company is contemplating the purchase of a new machine on which the following information has been gathered:

The company's discount rate is 16%, and the machine will be depreciated using the straight-line method. Given these data, the machine has a net present value of: A. -$26,100B. -$23,900C. $0D. +$26,100

35 OF 37


121. (Ignore income taxes in this problem.) The Whitton Company uses a discount rate of 16%. The company has an opportunity to buy a machine now for $18,000 that will yield cash inflows of $10,000 per year for each of the next three years. The machine would have no salvage value. The net present value of this machine to the nearest whole dollar is: A. $22,460B. $4,460C. $(9,980)D. $12,000

122. (Ignore income taxes in this problem.) The following data pertain to an investment:

The net present value of the proposed investment is: A. $3,355B. $(3,430)C. $0D. $621

123. (Ignore income taxes in this problem.) Kumanu, Inc. is considering investing in new FMS equipment for its factory. This equipment will cost $80,000, is expected to last 6 years, and is expected to have a $10,000 salvage value at the end of 6 years. The new equipment is expected to generate cost savings of $20,000 per year in each of the 6 years. Kumanu's discount rate is 16%. What is the net present value of this equipment? A. $(2,200)B. $3,700C. $20,500D. $(34,950)

124. (Ignore income taxes in this problem.) Stratford Company purchased a machine with an estimated useful life of seven years. The machine will generate cash inflows of $90,000 each year over the next seven years. If the machine has no salvage value at the end of seven years, and assuming the company's discount rate is 10%, what is the purchase price of the machine if the net present value of the investment is $170,000? A. $221,950B. $170,000C. $268,120D. $438,120

36 OF 37


125. (Ignore income taxes in this problem.) Arthur operates a part-time auto repair service. He estimates that a new diagnostic computer system will result in increased cash inflows of $2,100 in Year 1, $3,200 in Year 2, and $4,000 in Year 3. If Arthur's discount rate is 10%, then the most he would be willing to pay for the new computer system would be: A. $6,652B. $6,984C. $7,747D. $7,556

37 OF 37

Final

Documents

Transcript of Final