ACG 203 FINAL

Byerly Corporation has provided the following data concerning an investment project that it is considering: Initial investment $ 670,000 Working capital $ 61,000 Annual cash flow $ 227,000 per year Salvage value at the end of the project $ 20,000 Expected life of the project 3 years Discount rate 10 % The working capital would be released for use elsewhere at the end of the project. The net present value of the project is closest to:

$(105,847)

The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is:

zero.

In activity-based costing, as in traditional costing systems, manufacturing costs are not assigned to products.

False

A budget that is based on the actual activity of a period is known as a:

flexible budget

In net present value analysis, the release of working capital at the end of a project should be:

included as a cash inflow.

Which of the following costs are always irrelevant in decision making?

sunk costs

A cost that would be included in product costs under both absorption costing and variable costing is:

variable manufacturing costs.

A process costing system is employed in those situations where:

where manufacturing involves a single, homogeneous product that flows evenly through the production process on a continuous basis

Wallen Corporation is considering eliminating a department that has an annual contribution margin of $80,000 and $160,000 in annual fixed costs. Of the fixed costs, $90,000 cannot be avoided. The annual financial advantage (disadvantage) for the company of eliminating this department would be:

($10,000)

Higado Confectionery Corporation has a number of store locations throughout North America. In income statements segmented by store, which of the following would be considered a common fixed cost with respect to the stores?

the cost of corporate advertising aired during the Super Bowl

Accepting a special order will improve overall net operating income if the revenue from the special order exceeds:

the incremental costs associated with the order

Data concerning Buchenau Corporation's single product appear below: Selling price per unit $ 150.00 Variable expense per unit $ 34.50 Fixed expense per month $ 466,620 The break-even in monthly unit sales is closest to:

4,040

Which of the following measures of performance encourages continued expansion by an investment center so long as it is able to earn a return in excess of the minimum required return on average operating assets?

residual income

A favorable labor rate variance indicates that

standard hours exceed actual hours.

Kanzler Corporation is considering a capital budgeting project that would require an initial investment of $450,000 and working capital of $25,000. The working capital would be released for use elsewhere at the end of the project in 4 years. The investment would generate annual cash inflows of $143,000 for the life of the project. At the end of the project, equipment that had been used in the project could be sold for $10,000. The company's discount rate is 14%. The net present value of the project is closest to:

$(37,721)

Otool Incorporated is considering using stocks of an old raw material in a special project. The special project would require all 160 kilograms of the raw material that are in stock and that originally cost the company $1,936 in total. If the company were to buy new supplies of this raw material on the open market, it would cost $8 per kilogram. However, the company has no other use for this raw material and would sell it at the discounted price of $6.95 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 $83 for all 160 kilograms. What is the relevant cost of the 160 kilograms of the raw material when deciding whether to proceed with the special project?

$1,029

Johansen Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. The Corporation has provided the following estimated costs for the next year: Direct materials $ 6,000 Direct labor $ 20,000 Rent on factory building $ 15,000 Sales salaries $ 25,000 Depreciation on factory equipment $ 8,000 Indirect labor $ 12,000 Production supervisor's salary $ 15,000 Jameson estimates that 20,000 direct labor-hours will be worked during the year. The predetermined overhead rate per hour will be:

$2.50 per direct labor-hour

Bippus Corporation manufactures two products: Product X08R and Product P56L. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products X08R and P56L. Activity Cost Pool Activity Measure Total Cost Total Activity Machining Machine-hours $ 247,000 13,000 MHs Machine setups Number of setups $ 60,000 150 setups Product design Number of products $ 56,000 2 products General factory Direct labor-hours $ 260,000 10,000 DLHs Activity Measure Product X08R Product P56L Machine-hours 10,000 3,000 Number of setups 110 40 Number of products 1 1 Direct labor-hours 6,000 4,000 Using the plantwide overhead rate, how much manufacturing overhead cost would be allocated to Product P56L?

$249,200

A company makes a single product that it sells for $16 per unit. Fixed costs are $76,800 per month and the product has a contribution margin ratio of 40%. If the company's actual sales are $224,000, its margin of safety is:

$32,000

One of the employees of Davenport Corporation recently was involved in an accident with one of the corporation's delivery vans. The corporation is either going to repair the damaged van or sell it as is and buy a comparable used van. Information related to this decision is provided below: Initial cost of the damaged van $ 30,000 Accumulated depreciation to date on van $ 18,000 Salvage value of van immediately before crash $ 9,000 Salvage value of van immediately after crash $ 1,000 Cost to repair damaged van $ 5,000 Cost of a comparable used van $ 10,000 Based on the information above, Davenport would be financially better off:

$4,000 by repairing the damaged van.

A customer has requested that Lewelling Corporation fill a special order for 2,300 units of product S47 for $37 a unit. While the product would be modified slightly for the special order, product S47's normal unit product cost is $16.20: Direct materials $ 4.70 Direct labor 3.00 Variable manufacturing overhead 1.80 Fixed manufacturing overhead 6.70 Unit product cost $ 16.20 Assume that direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like modifications made to product S47 that would increase the variable costs by $1.80 per unit and that would require an investment of $17,000.00 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. The annual financial advantage (disadvantage) for the company as a result of accepting this special order should be:

$42,110

Molzahn Corporation is a manufacturer that uses job-order costing. The company closes out any overapplied or underapplied overhead to Cost of Goods Sold at the end of the year. The company has supplied the following data for the just completed year: Estimated total manufacturing overhead at the beginning of the year $481,250 Estimated direct labor-hours at the beginning of the year 35,000 direct labor-hours Results of operations: Actual direct labor-hours 40,000 direct labor-hours Manufacturing overhead: Indirect labor cost $ 179,000 Other manufacturing overhead costs incurred $ 465,000 Manufacturing overhead is overapplied or underapplied by:

$94,000 Underapplied

The Cook Corporation has two divisions—East and West. The divisions have the following revenues and expenses: East West Sales $ 500,000 $ 550,000 Variable costs 200,000 275,000 Traceable fixed costs 150,000 180,000 Allocated common corporate costs 135,000 170,000 Net operating income (loss) $ 15,000 $ (75,000) The management of Cook is considering the elimination of the West Division. If the West Division were eliminated, its traceable fixed costs could be avoided. Total common corporate costs would be unaffected by this decision. Given these data, the elimination of the West Division would result in an overall company net operating income (loss) of:

($155,000)

Lusk Corporation produces and sells 14,100 units of Product X each month. The selling price of Product X is $23 per unit, and variable expenses are $17 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $74,000 of the $104,000 in monthly fixed expenses charged to Product X would not be avoidable even if the product was discontinued. If Product X is discontinued, the annual financial advantage (disadvantage) for the company of eliminating this product should be:

($54,600)

Purves Corporation is using a predetermined overhead rate that was based on estimated total fixed manufacturing overhead of $121,000 and 10,000 direct labor-hours for the period. The company incurred actual total fixed manufacturing overhead of $113,000 and 10,900 total direct labor-hours during the period. The predetermined overhead rate is closest to

12.10

Mio Canoe Livery rents canoes and transports canoes and customers to and from their canoe trip on a local river. The trip is priced at $20 per person and has a CM ratio of 30%. Mio's fixed expenses are $84,000. Last year, sales were $400,000 and profit was $36,000. How many units need to be sold to break-even, and how many need to be sold to earn a profit of $42,000?

14,000 and 21,000

Jark Corporation has invested in a machine that cost $63,000, that has a useful life of ten years, and that has no salvage value at the end of its useful life. The machine is being depreciated by the straight-line method, based on its useful life. It will have a payback period of seven years. Given these data, the simple rate of return on the machine is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.)

24.3%

Jarvey Corporation is studying a project that would have a ten-year life and would require a $450,000 investment in equipment which has no salvage value. The project would provide net operating income each year as follows for the life of the project (Ignore income taxes.): Sales $ 500,000 Less cash variable expenses 200,000 Contribution margin 300,000 Less fixed expenses: Fixed cash expenses $ 150,000 Depreciation expenses 45,000 195,000 Net operating income $ 105,000 The company's required rate of return is 12%. The payback period for this project is closest to:

3 years

Olinick Corporation is considering a project that would require an investment of $329,000 and would last for 8 years. The incremental annual revenues and expenses generated by the project during those 8 years would be as follows (Ignore income taxes.): Sales $ 215,000 Variable expenses 28,000 Contribution margin 187,000 Fixed expenses: Salaries 35,000 Rents 48,000 Depreciation 43,000 Total fixed expenses 126,000 Net operating income $ 61,000 The scrap value of the project's assets at the end of the project would be $25,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to: (Round your answer to 1 decimal place.)

3.2 years

During September at Renfro Corporation, $65,000 of raw materials were requisitioned from the storeroom for use in production. These raw materials included both direct and indirect materials. The indirect materials totaled $4,000. The journal entry to record this requisition would include a debit to Manufacturing Overhead of:

4,000

Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $450,000 and would have a ten-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $20,000 per year to operate and maintain, but would save $100,000 per year in labor and other costs. The old machine can be sold now for scrap for $50,000. The simple rate of return on the new machine is closest to (Ignore income taxes.):

8.75%

Which of the following will not result in an increase in return on investment (ROI), assuming other factors remain the same?

An increase in operating assets

Which of the following may appear on a flexible budget performance report?

An unfavorable activity variance. A favorable revenue variance. An unfavorable spending variance. All of the above may appear on a flexible budget performance report.

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?

It is calculated based on the sales budget and the desired ending inventory.

Which of the following statements is NOT correct concerning the Cash Budget?

It is not necessary to prepare any other budgets before preparing the Cash Budget

Which of the following is the correct formula to compute the predetermined overhead rate?

Predetermined overhead rate = Estimated total manufacturing overhead costs ÷ Estimated total units in the allocation base

Which of the following would most likely NOT be included as manufacturing overhead in a furniture factory?

The amount paid to the individual who stains a chair.

In a flexible budget, what will happen to fixed costs as the activity level increases?

The fixed cost per unit will decrease.

A company has unlimited funds to invest at its discount rate. The company should invest in all projects having:

a net present value greater than zero.

The salary paid to the president of a company would be classified on the income statement as a(n):

administrative expense

Costs that can be eliminated in whole or in part if a particular business segment is discontinued are called:

avoidable costs

Some investment projects require that a company increase its working capital. Under the net present value method, the investment and eventual recovery of working capital should be treated as:

both an initial cash outflow and a future cash inflow.

Direct costs:

can be easily traced to a particular cost object.

Piekos Corporation incurred $90,000 of actual Manufacturing Overhead costs during June. During the same period, the Manufacturing Overhead applied to Work in Process was $92,000. The journal entry to record the application of Manufacturing Overhead to Work in Process would include a:

credit to Manufacturing Overhead of $92,000

Which of the following costs at a manufacturing company would be treated as a product cost under variable costing?

direct material cost

If the net present value of a project is zero based on a discount rate of 16%, then the internal rate of return is:

equal to 16%

Assume there was no beginning work in process inventory and the ending work in process inventory is 70% complete with respect to conversion costs. Under the weighted-average method, the number of equivalent units of production with respect to conversion costs would be

less than the units started during the period.

In process costing, a separate work in process account is kept for each:

processing department

The usual starting point for a master budget is:

the sales forecast or sales budget.

In activity-based costing, the activity rate for an activity cost pool is computed by dividing the total overhead cost in the activity cost pool by:

the total activity for the activity cost pool.