Accounting 211 Final
Next year's sales forecast shows that 20,000 units if Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12 per unit, respectively, Total budgeted sales for the year would be: A) $42,000 B) $200,000 C) $264,000 D) $464,000
D) $464,000 Product A: 20,000* 10 = 200,000 Product B: 22,000* 12= 264,000 total is 464,000
The amount of the average investment for a proposed investment of $120,000 in a fixed asset with a useful life of 4 years, straight-line depreciation, no residual value, and an expected total net income of $21,600 for the 4 years, is A) $30,000 B) $21,600 C) $5,400 D) $60,00
D) $60,000 Avg. investment= cost + residual value/ 2 Avg. investment= $120,000 + 0 / 2 Avg. investment= $60,000
Falcon Co. produces a single product. Its normal selling prices is $30.00 per unit. The variable costs are $18 per unit. Fixed costs are $25,000 for normal production of 5,000 units per month. Falcon received a request for a special order that would not interfere with normal sales. The order was for 1,500 units with a special price of $20.00 per unit. Falcon has the capacity to handle the special order. Should the order be accepted and if so, what would be the impact on net income? A) Reject, decrease of $750 B) Reject, decrease of $4,500 C) Accept, increase of $3,000 D) Accept, increase of $1,500
reject . accept sales 0 20 costs Variable costs . 0 . 18 ------- ------- 0 2 Accept, makes $2/ unit 1500 x 2 = 3,000
Budgets that show expected results for several activity levels are known as: A) Flexible Budgets B) Static Budgets C) Continuous Budgets D) None of the above
A) Flexible budgets
The production department is proposing the purchase of an automatic insertion machine. It has identified 3 machines and has asked for the accountant to analyze them to determine the best cash payback. A) Machine A B) Machine B C) Machine C D) All are equal
A . B . C annual cash flow: $40,000 . $50,000 . $75,000 avg. investment: $300,000 . $250,000 . $500,000 $300,000/$40,000 . = 7.5 $250,000/ $50,000 = 5.0 $500,000/ $75,000= 6.6 B) Machine B
Make/Buy
A restaurant bakes its own bread for a cost of $165 per unit (100 loaves), including fixed costs of $43 per unit. A proposal is offered to purchase bread from an outside source for $100 per unit, plus $15 per unit for delivery. Prepare a differential analysis dated August 16 to determine whether the company should make (alternative 1) or buy (alternative 2) the bread, assuming fixes costs are unaffected by the decision. make . buy . purchase price $ 0 . . $ 110 variable cost . $122 $15 fixed cost $ 0 --------- --------- $122 125 Answer: Make the bread, $3 cheaper per unit
The management of River Corporation is considering the purchase of a new machine costing $380,000. The company's desired rate of return is 6%. The annual net cash flow is estimated to be $95,000 per year for 5 years. The new present value for this investment is $95,000 per year for 5 years. The new present value for this investment is: A)$20,178 B) $(20,178) C) $19,875 D) $ (19,875)
A) $20,178 . annuity Net Present Value N= 5 -----> factor 4.2124 (found on annuity chart) R= 6% PV of cash flow= $95,000 * 4.2124 = $400,178 NPV= $400,178 - $380,000 = $20,178 $20,178
Nuthatch Corporation began its operations on September 1 of the current year. Budgeted sales for the first three months of business are $260,000, $375,000, and $400,000, respectively, for September, October, and November, The Company expects to sell 30% of its merchandise for cash. Of sales on account, 80% are expected to be collected in the month of the sale and 20% in the month following the sale. The cash collections expected in September is estimated to be: A) $223,600 B) $145,600 C) $182,000 D) $168,000
A) $223,600 (cash) September sales: $260,000 x 30% = 78,000 (credit) Sept sales: $260,000 - 78,000 182,000 x 80% = 145,600 78,000+ 145,600 = $223600
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 A) 20% B) 10% C) 40% D) 5%
A) 20% avg. rate of return= avg. annual income/ avg. investment avg. investment= cost + residual value /2 avg. investment= $6,000,000+ 0 / 2 avg. investment= $3,000,000 avg. rate of return= $12,000,000/20 avg rate of return= $600,000 $600,000/$3,000,000= 0.20 20%
Budgeted sales for January are $860,000. Woodpecker Co. expects to sell 20% of its merchandise for cash. Of the remaining 80% of sales on account, 75% are expected to be collected in the month of sale and 25% in the following month. The January cash collections from sales are: A) $812,000 B) $688,000 C)$468,000 D)$984,000
B) $688,000 (cash) Jan. sales= $860,000 x 20% = 172,000 (credit) Jan. sales= $860,000- 172,000 $688,000 x 75% = 516,000 $172,000 + $516,000 = $688,000
The expected average rate of return for a proposed investment of $800,000 in a fixed asset with a useful life of 4 years, straight-line depreciation, no residual value, and an expected total net income of $360,000 for the 4 years is, A)45% B) 22.5% C) 11.3% D) 5.5%
avg. rate of return= avg. annual income/ avg. investment avg. investment= cost + residual value /2 avg. investment= $800,000/ 2 avg. investment= $400,000 avg. rate of return= $360,000/4 (divided by 4 yrs) $90,000/$400,000= 0.225 22.5% B) 22.5%
If the expected sales volume for the current period is 8,000 units, the desired ending inventory is 1,400 units and the beginning inventory is 1,200, the number of unites set forth in the production budget, representing total production for the current period is, A) 10,600 B) 8,200 C) 66,000 D) 6,800
B) 8,200 . 8000+1400-1200= 8200
An October sales forecast projects 7,000 units are going to be sold as a price of $11.50 per unit. These units had a cost of $9.50 per unit. Total October sales are anticipated to be A) $14,000 B) $80,500 C) $66,500 D) $92,000
B) 80,500 . 7,000 x $11.50 = 80,500
A detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period is known as? A) Accounting cycle B) Budget C) Differential Analysis D) Capital Investing
B) Budget
Sage Company is operating at 90% of capacity and is currently purchasing a part in its manufacturing operations for $15 per unit. The unit cost for the business to make the part is $20, including fixed costs, and $11, not including fixed costs. If 30,000 units of the part are normally purchased during the year but could be manufactured using unused capacity. Should Sage Company make or buy the product and what is the impact on net income? A) Buy, $120,000 more profitable B) Make, $120,000 more profitable C) Make, $330,000 more profitable D) Buy, $450,000 more profitable
B) Make, $120,000 more profitable make . buy purchase price . 0 15 variable cost 11 0 fixed cost 9 9 ---- ---- (20) . (24) Make 4 cheaper. 30,000 x 4 = 120,000
Hayden Company is considering the acquisition of a machine that costs $675,000. The machine is expected to have a useful life of 6 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? A) 3.5 years B) 4 years C) 4.5 years D) 5 years
C) 4.5 years cash payback= cost/ annual cash flow cash payback= $675,000/ $150,000 cash payback= 4.5 years
Motorcycle Manu., Inc. projected sales of 78,000 machines for the year. The estimated January 1 inventory is 6,500 units and the desired December 31 inventory is 6,000 units. What is the budgeted production in units for the year? A) 78,500 B) 70,000 C) 77,500 D) 70,500
C) 77,500 . 78,000+6000 - 6500 = 77,500
The process by which management plans, evaluates, and controls long-term investment decisions involving fixed assets is called A) absorption cost analysis B) variable cost analysis C) Capital investment analysis D) cost-volume-profit analysis
C) Capital investment analysis
The first budget customarily prepared as part of an entity's master budget is the A) Production budget B) Cash budget C) Sales budget D) Direct Materials budget
C) Sales Budget
A cost that will not be affected by later decisions is known as a(n) A) Period cost B) Differential cost C) Sunk cost D) Replacement cost
C) sunk cost
The management of Wyoming Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return is 6%. The annual net cash flow is estimated to be $93,750 per year for 5 years. The present value index for this investment is: A) 1.00 B) 0.95 C) 1.25 D) 1.05
D) 1.05 Net Present Value N= 5-------> factor 4.2124 (found on annuity chart) R= 6% PV of cash flow= $93,750 * 4.2124 = $394,912.50 PV Index= PV of cash flow/Investment PV Index= $394,912.50/$375,000 PV Index= 1.05
Motel Corporation is analyzing a capital expenditure that will involve a cash outlay of $208,240. Estimated cash flows are expected to be $40,000 annually for 7 years. Calculate internal rate of return A) 10% B) 6% C) 12% D) 8%
D) 8% PV factor annuity= amt invested/ annual cash flow PV factor annuity= $206,240/ $40,000 PV factor annuity= 5.206 Net present value N= 7 years -------> factor R= ? look up on annuity table but use 5.206 and 7 years R= 8%
Which of the following is not true as it relates to budgeting? A) Budgets allow companies to define goals and objectives B) Budgets are used as a means of allocating resources C) Budgers allow companies to think about and plan for the future D) All of the above are true
D) All of the above are true
Relevant revenues and costs refer to A) Activities that occurred in the past B) Monies already earned and or spent C) Last year's net income D) Differences between the alternatives being considered
D) Differences between the alternatives being considered
The budget process involves doing all of the following except: A) Establishing specific goals B) Executing plans to achieve goals C) Periodically comparing actual results with the goals D) Dismissing all managers who fail to achieve operational goals specified in the budget
D) Dismissing all managers who fail to achieve operational goals specified in the budget
Oliver Oil Company incurs a cost of $100 barrel in extracting oil from the ground, which it sells for $150 a barrel. An alternative is to refine the oil and produce gasoline at a local refining cost of $25 per barrel, which can be sold for $182 per barrel. Oliver Oil company produces 1,000,000 barrels of oil each year. Should Oliver sell the oil as is when it comes out of the ground or refine it further into gasoline? On an annual basis, how much richer will the firm be by making the correct decision? A) Sell oil, 7,000,000 richer B) Refine oil into gasoline, $32,000,000 richer C) Sell oil, $25,000,000 richer D) Refine into gasoline, $7,000,000 richer
D) Refine it into gasoline, $7,000,000 richer sell oil . sell gas revenue . $150 $182 costs (100) (125) ---------- -------- income 50 57 $1,000,000 x 7 = 7,000,000 .
Which of the following reasons would cause a company to reject an offer to accept business at a special price? A) The additional sale will not conflict with regular sales B) The additional sales will increase the differential income C) The additional sales will not increase fixed expenses D) The additional sales will increase fixed expenses
D) The additional sales will increase fixed expenses
Which of the following are two methods of analyzing capital investment proposals that both ignore present value? A) internal rate or return and average rate of return B) net present value and average rate of return C) internal rate of return and net present value D) average rate of return and cash payback method
D) average rate of return and cash payback method
The amount of increase or decrease in revenue that is expected from a particular course of action as compared with an alternative is known as A) Manufacturing margin B) Contribution margin C) Differential cost D) Differential revenue
D) differential revenue
Bottle neck
Product A has a unit contribution margin of $24. Product B has a unit contribution margin of $30. Product A requires four testing hours, while Product B requires six testing hours. Determine the most profitable product, assuming the testing is a bottleneck constraint. Product A: $24/4 = 6 Product B: $30/6 = 5 Answer: Product A is most profitable per bottleneck constraint. ($6)
Accept Order at Special Price (cant figure out)
Product R is normally sold for $52 per unit. A special price of $42 is offered for the export market. The variable production cost is $30 per unit. An additional export tariff of 30% of revenue must be paid for all export products. Assume there is sufficient capacity for the special order. Prepare a differential analysis dated October 23 on whether to reject (alternative 1) or accept (alternative 2) the special order. reject . accept sales 42 variable costs 30 additional cost ------ ------- 8 Answer: Reject the order, $0.60 per unit loss if accept
Process/ Sell further
Product T is produced for $5.90 per pound. Product T can be sold without additional processing for $7.10 per pound or processed further into Product U at an additional cost of $0.74 per pound. Product U can be sold for $8.00 per pound. Prepare a differential analysis dated August 2 on whether to sell Product T (alternative 1) or process further into Product U (alternative 2). sell Product T sell Product U Revenue $7.10 $8.00 costs - $0.00 - $7.84 --------- ----------- income 0 0.16 Answer: Process further to Product U, $0.16 per unit more profitable
Continue/ Discontinue
Product TS-20 has Revenue: $102,000 Variable cost of goods sold: $52,500 Variable selling expense: $21,500 Fixed costs: $35,000 Loss from operations: $7,000 Prepare a differential analysis as of September 12 to determine if Product TS-20 should be continued (alternative 1) or discontinued (alternative 2), assuming fixed costs are unaffected by the decision. continue . discontinue Sales . 102,000 . 0 Cost goods sold . -52,500 . 0 ---------- Gross profit . 49,500 0 Operatin expenses . -21,500 . 0 ----------- Operating income 28,000 Answer: Continue, $28,000 more profitable