Question 1
Kinsi Corporation manufactures three different products. All five of these products must pass through a stamping machine in its fabrication department. This machine is Kinsi's constrained resource. Kinsi would make the most profit if it produces the product that:
uses the lowest number of stamping machine hours.
generates the highest contribution margin per unit.
uses the highest number of stamping machine hours.
generates the highest contribution margin per stamping machine hour.
Question 2
The Cowboy's Company needs 20,000 units of a certain part to use in its production cycle. Cowboys is considering the possibility of buying the part from Dolphins Company instead of making it. Sixty percent of the fixed overhead will remain regardless of the decision made. Accounting records indicate the following data:
Cost to Cowboys to make the part:
Direct materials, $4
Direct labor, $16
Variable factory overhead, $18
Fixed factory overhead, $10
Cost to buy the part for Dolphins Company, $36
Which decision should Cowboys make & what is the total cost savings that would result?
Buy, $80,000
Make, $120,000
Make, $80,000
Buy, $120,000
Question 3
Company X has gathered the following data for it's three product lines, X, Y, and Z.
|
|
Product X
|
Product Y
|
Product Z
|
|
Contribution Margin
|
$10,000
|
$12,000
|
$22,500
|
|
Units Produced
|
1,000
|
2,400
|
1,800
|
|
Labor hours required/unit
|
4
|
4
|
5
|
|
Machine hours required/unit
|
4
|
4
|
5
|
If Company X has a limited supply of labor hours, which product(s) should it prefer most?
Product Y
Product X
Product Z
Products X and Z
Question 4
Which of the following statements is true
The accounting rate of return method ignores the time value of money concept
The payback period ignores the time value of money concept and ignores cash flows received after the payback period
The net present value method considers the time value of concept and also considers cash flows during the entire life of the investment project
When the above methods yield conflicting results, the decision indicated by the net present value method should be considered
All of the above are true
Question 5
A company uses the net present value method to evaluate planned capital expenditures. Everything else being equal, the lower the required rate of return they use, the ____ will be the net present value.
identical
lower
can't be determined
higher
Question 6
The Sip & Dip Donut company is considering the acquisition of a new automatic donut dropper for $600,000. The machine will have a six-year life and will produce before tax cash savings of $200,000 each year. The asset is to be depreciated using the straight-line method with no salvage value. The company's tax rate is 40 percent.
The after-tax net cash inflow on the investment is
$120,000.
$ 80,000.
$160,000.
$200,000.
Question 7
The Sip & Dip Donut company is considering the acquisition of a new automatic donut dropper for $600,000. The machine will have a six-year life and will produce before tax cash savings of $200,000 each year. The asset is to be depreciated using the straight-line method with no salvage value. The company's tax rate is 40 percent.
The payback period is
3 years
7.50 years
3.75 years
5 years
Question 8
Equipment is purchased at a cost of $39,000. As a result, annual cash revenues will increase by $20,000; annual cash operating expenses will increase by $7,000; straight-line depreciation is used; the asset has a ten-year life; the salvage value is $3,000. Assuming a tax bracket of 34%, determine the accounting rate of return? (round to the nearest %)
13 percent
16 percent
33 percent
27 percent
Question 9
Shirt Co. wants to purchase a new cutting machine for its sewing plant. The investment is expected to generate annual net cash inflows of $30,000, have a useful life of 8 years, and an estimated salvage value of $10,000. If Shirt Co. has a required rate of return of 12%, the maximum amount they will be willing to spend for this machine is
$300,000
$198,720
$153,080
$149,040
Question 10
Darlington Company is considering investing in an equipment, which will increase yearly cash revenues by $65000, and yearly cash expenses to operate the equipment by $30,000. The asset will cost $200,000, and will last 8 years, with a salvage value of $40,000. Assuming a tax rate of 39%, determine the net present value of this asset, if the company requires a 10% return on investments.
$5,405
($25,804.75)
$174,195.25
($5,405)
Question 11
A company uses the net present value methodology in making capital expenditure decisions. In making a decision where they have to choose among two pieces of equipment, which of the following pieces of information will be considered irrelevant
Initial cost of each machine
Estimated life of each machine
Salvage value of each machine
Cash flow generated by each machine during the estimated life of the machine
All of the above are relevant
Question 12
Baton Rouge Company is considering purchasing new equipment which will cost $950,000. This equipment is expected to have a useful life of 15 years, have a salvage value of $50,000 and is expected to have an annual net cash inflow (before taxes) of $80,000. Assume the company is in the 34% tax bracket.
What is Baton Rouge's annual net cash inflow (after taxes)?
$13,200
$52,800
$73,200
$112,800
Question 13
Co. X has gathered the following estimates:
|
|
Machine A
|
Machine B
|
|
Cost
|
$600,000
|
$600,000
|
|
Life
|
5 yrs
|
5 yrs
|
|
Net Cash Inflow:
|
|
Yr 1
|
$100,000
|
$500,000
|
|
Yr 2
|
$200,000
|
$400,000
|
|
Yr 3
|
$300,000
|
$300,000
|
|
Yr 4
|
$400,000
|
$200,000
|
|
Yr 5
|
$500,000
|
$100,000
|
Co. X uses the net present value method to evaluate capital expenditures. Which of the following two machines has the higher net present value?
Cannot be determined from the information provided
Machine B
They are the same
Machine A
Question 14
Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During November, they incurred joint processing costs of $420,000. Production and sales value information for November are as follows:
|
Product
|
Cases
|
Selling Price/Case
|
Additional Costs/Case
|
|
Catsup
|
100,000
|
$10
|
$2
|
|
Tomato Juice
|
150,000
|
$8
|
$1
|
|
Canned Tomatoes
|
250,000
|
$12
|
$3
|
The joint cost allocated to Canned Tomatoes (using the net realizable value method) is (round to the closest $)
$81,942
$230,496
$107,562
$210,000
Question 15
Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During November, they incurred joint processing costs of $420,000. Production and sales value information for November are as follows:
|
Product
|
Cases
|
Selling Price/Case
|
Additional Costs/Case
|
|
Catsup
|
100,000
|
$10
|
$2
|
|
Tomato Juice
|
150,000
|
$8
|
$1
|
|
Canned Tomatoes
|
250,000
|
$12
|
$3
|
Red Sauce Canning Company is considering an option to further refine Catsup. By incurring an additional cost of $60,000, they will be able to increase their selling price of Catsup to $11.20 per case. Determine the incremental advantage (disadvantage) of this option? (round to the closest $)
$60,000
$260,000
($260,000)
($60,000)
Question 16
Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During November, they incurred joint processing costs of $420,000. Production and sales value information for November are as follows:
|
Product
|
Cases
|
Selling Price/Case
|
Additional Costs/Case
|
|
Catsup
|
100,000
|
$10
|
$2
|
|
Tomato Juice
|
150,000
|
$8
|
$1
|
|
Canned Tomatoes
|
250,000
|
$12
|
$3
|
If the company has a philosophy of marking up their products 20% over cost, the selling price per case of Tomato Juice should be (using the net realizable value method) (round to 2 decimal places)
$7.00
$2.06
$1.00
$0.86
Question 17
Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During November, they incurred joint processing costs of $420,000. Production and sales value information for November are as follows:
|
Product
|
Cases
|
Selling Price/Case
|
Additional Costs/Case
|
|
Catsup
|
100,000
|
$10
|
$2
|
|
Tomato Juice
|
150,000
|
$8
|
$1
|
|
Canned Tomatoes
|
250,000
|
$12
|
$3
|
The unit cost per case of Canned Tomatoes (using the physical volume method) is (round to 2 decimal places)
$3.84
$0.84
$2.84
$1.84
Question 18
A cost that is incurred between the split-off point and the point of sale is known as a:
Unit cost
Split-off cost
Separable cost
Joint cost
Question 19
Company X uses a joint processing system for it's 2 products Y & Z. As a result of using the physical volume method of joint cost allocation instead of the net realizable value method, they have overstated the unit cost for product Z and understated the unit cost for product Y. If Company X prepares separate financial statements for each of the 2 products, which of the following statements is true
There will be no effect on the Income Statements for either Y or Z
COGS for product Z will be overstated
Gross Margin for product Z will be overstated
Net Income for product Y will be overstated
Question 20
Zell Company derives two products, Great and Grand, from a single process. Great and Grand can be sold either as is or after further processing. Costs and selling prices are as follows:
|
Product
|
Gallons
|
Selling Price (as is)
|
Additional Processing Costs
|
Selling price (after processing)
|
|
Great
|
30,000
|
$8/gallon
|
$50,000
|
$10/gallon
|
|
Grand
|
20,000
|
$6/gallon
|
$80,000
|
$9.50/gallon
|
Which of the following products should Zell Company process further?
neither Great nor Grand
Grand only
Great only
both Great and Grand.