Acct 2 exam 3

An opportunity cost:

Is the potential benefit lost by choosing a specific alternative course of action among two or more.

A disadvantage of using the payback period to compare investment alternatives is that:

It ignores cash flows beyond the payback period.

After-tax net income divided by the average amount invested in a project, is the:

accounting rate of return

An example of a sunk cost is

book value of old machine

The calculation of the payback period for an investment when net cash flow is even (equal) is:

cost of investment / annual net cash flow

The process of restating future cash flows in today's dollars is known as:

discounting

A company's required rate of return, typically its cost of capital is called the:

hurdle rate

An additional cost incurred only if a company pursues a particular course of action is a(n)

incremental cost

An additional cost incurred only if a company pursues a particular course of action is a(n):

incremental cost

The rate that yields a net present value of zero for an investment is the:

internal rate of return

The potential benefits lost by taking a specific action when two or more alternative choices are available is known as a(n):

opportunity cost

A cost that requires a future outlay of cash, and is relevant for current and future decision making, is a(n):

out of pocket cost

Which methods of evaluating a capital investment project ignore the time value of money?

payback period and accounting rate of return

A cost that cannot be avoided or changed because it arises from a past decision, and is irrelevant to future decisions, is called a(n):

sunk cost

The accounting rate of return is calculated as

The after-tax income divided by the total investment.

Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3 per unit. Bluebird currently produces and sells 75,000 units at $7.00 each. This level represents 80% of its capacity. Production costs for these units are $3.50 per unit, which includes $2.25 variable cost and $1.25 fixed cost. If Bluebird accepts this additional business, the effect on net income will be:

$11,250 increase Incremental revenue (15,000 feeders * $3) $45,000 Incremental costs (15,000 feeders * $2.25 variable cost) 33,750 Contribution margin increase $11,250

A company's flexible budget for 12,000 units of production showed total contribution margin of $24,000 and fixed costs, $16,000. The operating income expected if the company produces and sells 15,000 units is:

$14,000

Hassock Corp. produces woven wall hangings. It takes 2 hours of direct labor to produce a single wall hanging. Bartels' standard labor cost is $12 per hour. During August, Bartels produced 10,000 units and used 21,040 hours of direct labor at a total cost of $250,376. What is Bartels' labor rate variance for August?

$2,104 favorable.

Summerlin Company budgeted 4,000 pounds of material costing $5.00 per pound to produce 2,000 units. The company actually used 4,500 pounds that cost $5.10 per pound to produce 2,000 units. What is the direct materials quantity variance?

$2,500 unfavorable

A company has established 5 pounds of Material J at $2 per pound as the standard for the material in its Product Z. The company has just produced 1,000 units of this product, using 5,200 pounds of Material J that cost $9,880.The direct materials price variance is:

$520 favorable.

A company provided the following direct materials cost information. Compute the cost variance. Standard costs assigned: Direct materials standard cost (405.000 units @ $2/unit) $810.000 Actual costs: Direct Materials costs incurred (403,750 units @ $2.20/unit) $888.250

$78.250 Unfavorable.

A company manufactures and sells a product for $120 per unit. The company's fixed costs are $68,760, and its variable costs are $90 per unit. The company's break-even point in units is:

2,292

A new manufacturing machine is expected to cost $278,000, have an eight-year life, and a $30,000 salvage value. The machine will yield an annual incremental after-tax income of $35,000 after deducting the straight-line depreciation. Compute the accounting rate of return for the investment.

22.7%

Parallel Enterprises has collected the following data on one of its p ducts. During the period the company produced 25,000 units. The direct materials price variance is: Direct materials standard (7 16. @ $2/1b) Actual cost of materials purchased $14 per finished unit $322.500 Actual direct materials purchased and used 150,000 Ibs.

22500 unfavorable

A new manufacturing machine is expected to cost $278,000, have an eight-year life, and a $30,000 salvage value. The machine will yield an annual incremental after-tax income of $35,000 after deducting the straight line depreciation. Compute the payback period for the purchase.

4.2 years

Parallel Enterprises has collected the following data on one of its products. During the period the company produced 25,000 units. The direct materials quantity variance is: Direct materials standard (7 lbs. @, $2/1b) Actual cost of materials purchased Actual direct materials purchased and used $14 per finished unit $322,500 150,000 kg

50000 favorable

A flexible budget may be prepared:

At any time in the planning period.

A foreign company (whose sales will not affect Benjamin's market) offers to buy 4,000 units at $7.50 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $600 and selling and administrative costs by $300. If Benjamin accepts the offer, its profits will:

Increase by $4,300.