COL 4

The expected average rate of return for a proposed investment of $4,800,000 in a fixed asset, using straight-line depreciation, with a useful life of 20 years, no residual value, and an expected total net income of $10,560,000 over the 20 years is

22%

Hayden Company is considering the acquisition of a machine that costs $675,000. The machine is expected to have a useful life of six years, a negligible residual value, an annual net cash flow of $150,000, and annual operating income of $87,500. What is the estimated cash payback period for the machine?

4.5 years Cash Payback Period = Initial Cost/Annual Net Cash Inflow = $675,000/$150,000 = 4.5 years

Which of the following is not one of the common types of responsibility centers?

revenue center

The amount of increase or decrease in revenue that is expected from a particular course of action as compared with an alternative is

differential revenue

All of the following are advantages of decentralization except

each decentralized operation purchases its own assets and pays for operating costs

Which of the following is the best example of a decentralized operation?

each unit is responsible for its own operations and decision making

The primary advantages of the average rate of return method are its ease of computation and the fact that

it emphasizes the amount of income earned over the life of the proposal

Which of the following are present value methods of analyzing capital investment proposals?

net present value and internal rate of return

The amount of income that would result from an alternative use of cash is called

opportunity cost

Which of the following is a measure of a cost center manager's performance?

budget performance report

Decisions to install new equipment, replace old equipment, and purchase or construct a new building are examples of

capital investment analysis

The process by which management plans, evaluates, and controls long-term investment decisions involving fixed assets is called

capital investment analysis

Division A reported income from operations of $975,000 and total service department charges of $675,000. As a result,

income from operations before service department charges was $1,650,000

Which method of evaluating capital investment proposals uses the concept of present value to compute a rate of return?

internal rate of return

The methods of evaluating capital investment proposals can be separated into two general groups—present value methods and

methods that ignore present value

Which of the following would be considered a sunk cost?

net book value of equipment that has no market value

Which method for evaluating capital investment proposals reduces the expected future net cash flows originating from the proposals to their present values and computes a net present value?

net present value

All of the following should be considered in a make-or-buy decision except

whether the supplier will make a profit that would no longer belong to the business

What pricing concept considers the price that other providers charge for the same product?

competition-based concept

A manager is responsible for costs only in a(n)

cost center

In a cost center, the manager has responsibility and authority for making decisions that affect

costs

Relevant revenues and costs refer to

differences between the alternatives being considered

The amount of increase or decrease in cost that is expected from a particular course of action as compared with an alternative is

differential cost

For higher levels of management, responsibility accounting reports

are more summarized than for lower levels of management

The management of Arkansas Corporation is considering the purchase of a new machine costing $490,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for Years 1 through 5 are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment:

$(16,170)

Sparrow Co. is currently operating at 80% of capacity and is currently purchasing a part used in its manufacturing operations for $8.00 a unit. The unit cost for Sparrow Co. to make the part is $9.00, which includes $0.60 of fixed costs. If 4,000 units of the part are normally purchased each year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease for making the part rather than purchasing it?

$1,600 increase

Delaney Company is considering replacing equipment that originally cost $600,000 and that has $420,000 accumulated depreciation to date. A new machine will cost $790,000. What is the sunk cost in this situation?

$180,000

Income from operations for Division L is $250,000, total service department charges are $400,000, and operating expenses are $2,750,000. What are the revenues for Division L?

$3,400,000

Lara Technologies is considering a cash outlay of $250,000 for the purchase of land, which it could lease out for $35,000 per year. If alternative investments that yield a 12% return are available, the opportunity cost of the purchase of the land is

$30,000

The amount of the average investment for a proposed investment of $120,000 in a fixed asset with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $21,600 for the four years is

$60,000 Average Investment = (Initial Cost + Residual Value)/2 = $120,000/2 = $60,000

Using the variable cost concept, determine the markup per unit for 30,000 units using the following data:

$8

Blaser Corporation had $275,000 in invested assets, sales of $330,000, income from operations amounting to $33,000, and a desired minimum return of 7.5%. The return on investment for Blaser Corporation is

12%

Mason Corporation had $650,000 in invested assets, sales of $700,000, income from operations amounting to $99,000, and a desired minimum return of 15%.

14.1%

Mason Corporation had $650,000 in invested assets, sales of $700,000, income from operations amounting to $99,000, and a desired minimum return of 15%.​The profit margin for Mason is

14.1%

The expected average rate of return for a proposed investment of $650,000 in a fixed asset, with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $240,000 for the four years, is

18.5%

The expected average rate of return for a proposed investment of $6,000,000 in a fixed asset, using straight-line depreciation, with a useful life of 20 years, no residual value, and an expected total net income of $12,000,000 over the 20 years is

20%

The expected average rate of return for a proposed investment of $800,000 in a fixed asset with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $360,000 for the four years is

22.5%

Magpie Corporation uses the total cost concept of product pricing. Below is the cost information for the production and sale of 60,000 units of its sole product. Magpie desires a profit equal to a 25% rate of return on invested assets of $700,000.

22.6%

Marshall Corporation had $220,000 in invested assets, sales of $242,000, income from operations of $66,000, and a desired minimum return of 3%. The return on investment for Marshall is

30%

An anticipated purchase of equipment for $490,000 with a useful life of eight years and no residual value is expected to yield the following annual net incomes and net cash flows:

5 years

Which of the following reasons would cause a company to reject an offer to accept business at a special price?

The additional sales will increase fixed expenses.

A series of equal cash flows at fixed intervals is termed a(n)

annuity

Which of the following are two methods of analyzing capital investment proposals that both ignore present value?

average rate of return and cash payback method

Which of the following would be most effective in a small owner-manager-operated business?

centralization

In a profit center, the department manager has responsibility for and the authority to make decisions that affect

both costs and revenues for the department or division

Target costing is arrived at by taking the

selling price minus desired profit

A cost that will not be affected by later decisions is termed a

sunk cost

Which of the following is not an advantage of the average rate of return method?

takes into consideration the time value of money

A practical approach that is frequently used by managers when setting normal long-run prices is

the cost-plus approach

Which of the following is a measure of a manager's performance working in a profit center?

the divisional income statements

The target cost approach assumes that

the selling price is set by the marketplace

Which of the following is true of the cash payback period?

the shorter the payback, the less likely the possibility of obsolescence

When using the product cost concept of applying the cost-plus approach to product pricing, what is included in the markup?

total selling and administrative expenses plus desired profit

Income from operations of the Pierce Automobile Division is $2,225,000. If income from operations before service department charges is $3,250,000,

total service department charges are $1,025,000