Managerial Accounting, Midterm 3, Professor Johnson
What are examples of non-incremental costs?
fixed costs...usually
What assumes you reinvest at the discount rate?
NPV
Are the COGS a fixed, shared, or sunk cost?
a mixed variety (could be all sunk, or some this or that)
Are the Marketing Costs a fixed, shared, or sunk cost?
a mixed variety (could be all sunk, or some this or that)
What is the price per unit a company should actually set for special order cases?
as high as they can without losing the order
The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is: a. the fixed manufacturing cost of the component b. the variable manufacturing cost of the component c. zero d. the total manufacturing cost of the component
c. zero
If the company could expand its labor capacity by running an extra amount of hours and DLH increases by $3, what additional product(s) should the company manufacture?
the product that has a higher CM/DLH greater than $3
What does the IRR tell you?
the real return on a project
True or false. Sunk costs and future costs that do not differ between the alternatives are not relevant in a decision.
true
Can there be more than one IRR?
yes, if cashflows have certain characteristics
relevant cost per unit
DM+DL+VMOH+FMOH
True or false. Consistency demands that a cost that is relevant in one decision be regarded as relevant in other decisions as well.
false
True or false. Sunk costs and future costs that do not differ between the alternatives may or may not be relevant in a decision.
false
True or false. Sunk costs are costs that have proven to be unproductive.
false
True or false. Variable costs are always relevant costs in decisions.
false
sunk cost
have already been incurred and cannot be changed now or in the future; does not change cash flow and should be ignored when making decisions
What assumes you can invest the project returns at the IRR?
implicitly
What is the company's best interest if demand is unlimited?
produce one product (the most profitable one)
Use this equation when it asks for the current margin per unit based on a selling price of $XXX.
selling price - variable costs (only incremental costs)
What is the IRR when NPV equals zero?
the IRR is equal to the project discount rate
When the NPV > 0, it implies that...
the IRR is greater than the firm's discount rate (positive NPV project)
When the NPV < 0, it implies that...
the IRR is less than the firm's discount rate (negative NPV project)
What is the minimum unit price a company should consider for an order in special order cases?
the break-even price (that does not mean they should sell it at that price, they should consider more decisions)
What does the discount rate tell you?
the discount rate makes the NPV of a project zero
