chapter 13 and 14 review

Capital budgeting methods that focus on cash flows rather than incremental operating income are ______.

- payback - internal rate of return - net present value

Capital budgeting decisions ______.

- require a great deal of analysis prior to acceptance - involve an immediate cash outlay in order to obtain a future return

A new machine requires an investment of $630,000 and will generate $100,000 in cash inflows for 7 years, at which time the salvage value of the machine will be $130,000. Using a discount rate of 10%, the net present value of the machine is $

-76,510 or (76,510)

A company is considering buying a component part that they currently make. Items related to the equipment being used to make the component that are relevant to this decision include ______. Multiple select question.

- alternative uses for the equipment - salvage value

Net present value is the ______.

- difference between the present value of a project's cash inflows and the present value of the project's cash outflows

A company must make a volume trade-off decision when they ______.

- do not have enough capacity to satisfy the demand for all of its products - must trade off units of one product for units of another due to limited production capacity

Whitecotton 's Manufacturing Overhead was estimated to be $345,100 for the year along with 20,300 direct labor hours. Actual manufacturing overhead was $424,900, and actual labor hours were 21,800. The amount debited to the Manufacturing Overhead account would be:

424,900

What assumption underlies net present value analysis?

All cash flows generated by an investment project are immediately reinvested at a rate of return equal to the discount rate.

Which of the following can make a product line look less profitable than it really is?

Allocated common fixed costs

How managers plan significant investments in projects that have long term implications such as purchasing new equipment or introducing new products is called

Capital Budgeting

The first step in decision making is to ______. Multiple choice question.

define the alternatives

An increase in cost between two alternatives is a(n)

differential cost

A business segment should only be dropped if a company can save more in ______ costs than it loses in contribution margin.

fixed

When making a product line decision, a company may focus on lost contribution margin and avoidable fixed costs or prepare comparative ______.

income statements

Working capital ______. Multiple choice question.

often increases when a company takes on a new project

The costs provided by a well-designed activity-based costing system are ______ relevant to a decision.

potentially

The two broad categories into which capital budgeting decisions fall are ______ and ______ decisions.

preference, screening

Deciding what to do with a joint product at the split-off point is a(n) _______ or ______ decision.

sell or process further

When making a decision, irrelevant items are included in the analysis of both alternatives when using ______.

the total cost approach

When considering decision alternatives, both relevant and irrelevant costs are included when using the

total cost approach

A company is considering buying a component part that they currently make. Items related to the equipment being used to make the component that are relevant to this decision include ______.

alternative uses for the equipment salvage value

Anything that prevents you from getting more of what you want is a(n)

constraint

When a shortage or limited resource of some type restricts a company's ability to satisfy demand, the company has a(n)

constraint

A business segment should only be dropped if a company can avoid more in fixed costs than it gives up in ______. Multiple choice question.

constribution margin

When a constraint exists, companies need to focus on maximizing ______.

contribution margin per unit of constraint

The potential benefit given up when selecting one alternative over another is a(n) ______ cost.

opportunity cost

A screening decision ______.

relates to whether a proposed project is acceptable

When making a decision only ______ costs and benefits should to be included in the analysis.

relevant

Less dependence on suppliers is an advantage of ______.

vertical integration

When demand for products exceeds the production capacity, a ____________ decision must be made

volume trade off

When a resource, such as space in the factory, has no alternative use, its opportunity cost is ______.

zero

Current assets minus current liabilities is called

Blank 1: working Blank 2: capital

The capital budgeting methods that focus on incremental operating income rather than cash flows is ______. Multiple choice question.

simple rate of return

Determining whether to carry out an activity in the value chain internally or use a supplier is a ______ decision.

make or buy

Capital budgeting decisions include ______. Multiple select question.

- determining which equipment to purchase among available alternatives - deciding to replace old equipment - purchasing new equipment to reduce cost - acquiring a new facility to increase capacity - choosing to lease or buy new equipment

Select the capital budgeting approaches that use discounted cash flows.

- Net present value method - Internal rate of return method

Which of the following should not be included in the analysis when making a decision?

Sunk cost, non-differential future cost