Accounting final exam

Michael & Co. expects overhead costs of $19,000 per month and direct production costs of $24 per unit. The estimated production activity for the current accounting period is as follows: 1st Quarter= 11,300 2nd Quarter= 8,700 3rd Quarter= 8,000 4th Quarter= 10,000 The predetermined overhead rate based on units produced is: (Round the answer to 2 decimal places.)

$0.50 per unit. $2.00 per unit. $6.00 per unit. $30.00 per unit. Answer= 6.00 per unit Explanation Allocation rate = Total cost to be allocated ÷ Cost driver (allocation base) Allocation rate = ($19,000 × 12 months) ÷ (11,300 units + 8,700 units + 8,000 units + 10,000 units) = $6.00 per unit

Benitez Company currently outsources a relay switch that is a component in one of its products. The switches cost $29 each. The company is considering making the switches internally at the following projected annual production costs: Unit-level material cost$5 Unit-level labor cost$4 Unit-level overhead$3 Batch-level set-up cost (6,000 units per batch)$37,000 Product-level supervisory salaries$43,500 Allocated facility-level costs$32,000 The company expects an annual need for 6,000 switches. If the company makes the product, it will have to utilize factory space currently being leased to another company for $2,700 a month. If the company decides to make the parts, total costs will be:

$10,900 more than if the switches are purchased. $42,900 more than if the switches are purchased. $32,600 less than if the switches are purchased. $32,000 less than if the switches are purchased. Answer: $10,900 more than if the switches are purchased. Explanation: $29 per unit × 6,000 units = $174,000 Unit-level costs [($5 + $4 + $3) × 6,000 units)$72,000 Batch-level costs ($37,000 × 1 batch) 37,000 Product-level costs (supervisory salaries) 43,500 Facility-level costs (rent of factory space of $2,700 × 12 months) 32,400 Total relevant costs$184,900 If the company decides to make the parts, total costs will be $10,900 (= $184,900 − $174,000), more than if the switches are purchased.

During its first year of operations, Connor Company paid $45,160 for direct materials and $19,400 in wages for production workers. Lease payments and utilities on the production facilities amounted to $8,400. General, selling, and administrative expenses were $9,400. The company produced 6,400 units and sold 5,400 units for $16.40 a unit. The average cost to produce one unit is which of the following amounts?

$13.51 $9.92 $11.40 $12.87 Answer: 11.40 Explanation Average cost per unit = (Materials cost + Labor costs + Overhead costs) ÷ Number of units produced Average cost per unit = ($45,160 + $19,400 + $8,400) ÷ 6,400 units = $11.40 per unit

The Mighty Music Company produces and sells a desktop speaker for $170. The company has the capacity to produce 57,000 speakers each period. At capacity, the costs assigned to each unit are as follows: Unit level costs$80 Product level costs$22 Facility level costs$12 The company has received a special order for 8,000 speakers. If this order is accepted, the company will have to spend $17,000 on additional costs. Assuming that no sales to regular customers will be lost if the order is accepted, at what selling price will the company be indifferent between accepting and rejecting the special order? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

$132.13 $89.63 $82.13 $92.63 Answer: 82.13 Explanation Budgeted cost for production of 8,000 speakers: Per Unit Unit-level costs$80 $640,000 Other incremental costs 17,000 Relevant cost $657,000 The other costs are not relevant because the company will incur them whether it accepts or rejects the special order. At a minimum, the company would need to earn revenue of $657,000 to be indifferent between accepting and rejecting this special order. The price per unit would be calculated as follows: $657,000 ÷ 8,000 units = $82.13 per unit

Max bought a ticket to the championship baseball game for $110. Someone approaches him outside the stadium and offers him $245 for his ticket. If Max decides to go to the game instead of selling his ticket, how much does it cost Max to go to the game?

$135 $110 $245 None of the above. Answer: 245 Explanation An opportunity cost is the sacrifice that is incurred in order to obtain an alternative opportunity. The $245 that is sacrificed if Max goes to the game is the opportunity cost inherent in this decision. Since this cost differs between the alternatives of going to the game or selling the ticket and since it affects the present or future, this $245 cost is relevant to the decision.

The Flintstone Construction Company delivers dirt and stone from local quarries to its construction sites. A new truck that was purchased for a cost of $124,000 at the beginning of the year was expected to deliver 207,000 tons over its useful life. The following is a breakdown of the tons delivered during the year to each construction site: Construction Sites:A . B C D Tons Delivered:2,700 4,200 4,700 2,200 How much truck depreciation should be allocated to Site A? (Do not round intermediate calculations. Round your answer to the nearest dollar.)

$19,768 $1,240 $4,700 None of these answers are correct. Answer: None of these are correct Explanation Allocation rate = Total cost to be allocated ÷ Cost driver (allocation base) Allocation rate = $124,000 ÷ 207,000 tons = $0.60 per ton Allocation per cost object = Allocation rate × Weight of the cost driver for that cost object Allocated cost to Site A = $0.60 per ton × 2,700 tons = $1,617

Haskins Company employs material handling employees who move materials between production divisions at a labor cost of $188,000 a year. It is estimated that these employees move 640,000 pounds of material per year. If 68,000 pounds are moved in March, how much of the material handling cost should be assigned to products made in March? (Do not round intermediate calculations.)

$19,975 $13,975 $26,975 $20,975 Answer: 19,975 Explanation Allocation rate = Total cost to be allocated ÷ Cost driver (allocation base) Allocation rate = $188,000 ÷ 640,000 lbs. = $0.2938 per lb. Allocation per cost object = Allocation rate × Weight of the cost driver for that cost object Allocation of material handling cost in March = $0.2938 per lb. × 68,000 lbs. = $19,975

Safety Products currently outsources an electrical switch that is a component in its sprinkler systems. The switches are purchased for $28 each. The company is considering making the switches internally and has conducted a study to determine the costs involved. The costs below are projected annual production costs: Unit-level material cost$4 Unit-level labor cost$3 Unit-level overhead$2 Batch-level cost (5,000 units per batch) $16,000 Product-level supervisory salaries$43,000 Allocated facility-level costs$31,000 Assume that the company needs 10,000 of the switches, which would be produced in two batches. Assume also that the company will still be operating within the relevant range. If Safety decides to make the parts under these conditions, the total relevant costs will be:

$196,000. $149,000. $180,000. $165,000. Answer: 165,000 Explanation Relevant cost for expected production of the electrical switches: Unit-level costs [($4 + $3 + $2) × 10,000 units]$90,000 Batch-level costs ($16,000 × 2 batches) 32,000 Product-level costs (supervisory salaries) 43,000 Total relevant costs$165,000 The allocated factory-level costs are not relevant because the company will incur them whether it accepts or rejects the special order.

Scholastic Tours is trying to decide which one of two tours it will introduce. The costs and revenues associated with each alternative are listed below: Eastern Tour Western Tour Projected revenue $8,000 $10,000 Variable costs 2,000 6,000 Fixed costs 3,000 3,000 Profit $3,000 $1,000 What are the incremental (differential) costs of the Western Tour?

$2,000 $3,000 $4,000 None of these answers are correct. Answer: 4,000 Explanation Differential costs of Western Tour = $6,000 − $2,000 = $4,000.

Jiminez Company paid its annual property tax of $12,500 on its manufacturing facility in January. The company expects to make 5,000 units of product during the year. During January, 800 units of product were produced. Based on this information: (Do not round intermediate calculations.) $2,000 of the property tax cost should be allocated to the January production. $1,042 of the property tax cost should be allocated to the January production. $3,125 of the property tax cost should be assigned to the January production. $12,500 of the property tax cost should be allocated to the January production.

$2,000 of the property tax cost should be allocated to the January production. $1,042 of the property tax cost should be allocated to the January production. $3,125 of the property tax cost should be assigned to the January production. $12,500 of the property tax cost should be allocated to the January production. Answer:$2,000 of the property tax cost should be allocated to the January production. Explanation Allocation rate = Total cost to be allocated ÷ Cost driver (allocation base) Allocation rate = $12,500 ÷ 5,000 units = $2.50 per unit Allocation per cost object = Allocation rate × Weight of the cost driver for that cost object Allocation of property tax cost in January = $2.50 per unit × 800 units = $2,000

Morrisey Company has two investment opportunities. Both investments cost $6,700 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below: Investment I Investment II Period 1 $1,850 $1,850 Period 2 1,850 3,020 Period 3 2,850 4,190 Period 4 5,360 2,850 Total $11,910 $11,910 What is the net present value of Investment II assuming an 12% minimum rate of return? (PV of $1 and PVA of $1) (Do not round intermediate calculations. Round your answer to nearest whole dollar.)

$2,153 $8,853 $(8,562) $11,910 Answer:$2,153 Explanation Net present value = (Expected cash flows × PV factor) − Cost of investment Net present value = [($1,850 × 0.892857) + ($3,020 × 0.797194) + ($4,190 × 0.711780) + ($2,850 × 0.635518)] − $6,700 = $2,153 (rounded) PV factors from Appendix Table 1 (n = 1, 2, 3, and 4, respectively, i = 12)

Howard Company provided the following selected information about its consumer products division for the current year: Desired ROI 12% Operating income$283,200 Residual income$73,200 Based on this information, the division's investment amount was:

$2,360,000. $1,750,000. $610,000. $4,110,000. Answer: 1,750,000 Explanation Residual income = Operating income − (Operating assets × Desired ROI) $73,200 = $283,200 − (Operating assets × 12%) Operating assets × 12% = $283,200 − $73,200 Operating assets = $210,000 ÷ 12% = $1,750,000

Bank's Department Store has three departments: Men's, Women's and Children's. The store incurred $31,000 of store rental costs during the current year. The departments identified the following cost drivers: Men's Women's Children's Labor dollars$531,000 $776,000 $241,000 Number of employees 11 21 5 Square footage 3,100 8,100 1,100 Number of sales transactions 301,000 901,000 91,000 Using the most appropriate cost driver, how much rental cost should be allocated to the Women's Department? (Do not round intermediate calculations. Round your answer to the nearest dollar.)

$20,415 Correct $4,189 $4,826 $2,182 Answer: 20,415 Explanation Assuming managers are assigned a certain amount of the rental cost for each square foot of space they use, they should have the authority to establish the size of the space used by their departments .Allocation rate = Total cost to be allocated ÷ Cost driver (allocation base) Allocation rate = $31,000 ÷ (3,100 sq. ft. + 8,100 sq. ft. + 1,100 sq. ft.) = $2.5203 per sq. ft. Allocation per cost object = Allocation rate × Weight of the cost driver for that cost object Allocation of overhead cost to Women's Department = $2.5203 per sq. ft. × 8,100 sq. ft. = $20,415

Jessup Company expects to incur overhead costs of $15,000 per month and direct production costs of $141 per unit. The estimated production activity for the upcoming year is 1,500 units. If the company desires to earn a gross profit of $66 per unit, the sales price per unit would be which of the following amounts?

$215 $207 $327 $146 Answer: $327 Explanation Selling price per unit = Cost per unit + Markup Selling price per unit = [($15,000 per month × 12 months ÷ 1,500 units) + $141 per unit] + $66 per unit Selling price per unit = ($120 per unit + $141 per unit) + 66 per unit = $327 per unit

M and M, Inc. produces a product that has a variable cost of $2.50 per unit. The company's fixed costs are $32,500. The product is sold for $5 per unit and the company desires to earn a target profit of $10,000. What is the amount of sales that will be necessary to earn the desired profit? (Do not round intermediate calculations.)

$215,000 $65,000 $107,500 $85,000 Answer: 85,000 Explanation Contribution margin per unit = (Selling price per unit − Variable costs per unit) Contribution margin per unit = $5 per unit − $2.50 per unit = 2.50 per unit Break-even point in units = (Fixed costs + Desired profit) ÷ Contribution margin per unit Break-even point in units = ($32,500 + $10,000) ÷ 2.50 per unit = 17,000 units Break-even point in dollars = Break-even point in units × Selling price per unit Break-even point in dollars = 17,000 units × $5 = $85,000

Benton Company's sales budget shows the following expected total sales: Month Sales January $23,000 February $27,000 March $32,000 April $43,000 The company expects 70% of its sales to be on account (credit sales). Credit sales are collected as follows: 25% in the month of sale and 69% in the month following the sale, with the remainder being uncollectible and written off. The total cash receipts during April would be:

$23,200. $22,575. $25,005. $35,881. Answer: 35,881 Explanation Cash receipts during April from sales in March and April = (March sales × Percent credit sales × Percent collected in month following month of sale) + (April sales × Percent credit sales × Percent collected in month of sale) + (April sales × Percent cash sales) Cash receipts during April from sales in March and April = [$32,000 × 70% × 69%] + ($43,000 × 70% × 25%) + [$43,000 × (100% − 70%)] = $15,456 + $7,525 + $12,900 = $35,881

Breezy Company is disposing of equipment that was originally purchased for $584,000 and has $255,000 of accumulated depreciation to date. The same equipment would cost $818,000 to replace. What is the total amount of sunk cost in this decision?

$255,000 $329,000 $839,000 $818,000 Answer: 329,000 Explanation: Since sunk costs have been incurred in past transactions, they cannot be changed and are not relevant for making current decisions. The book value of the equipment of $329,000 ( = $584,000 − $255,000) is not relevant.

The following income statement is provided for Ramirez Company for the current year: Sales revenue (2,700 units × $20.20 per unit)=$ 54,540 Cost of goods sold (variable; 2,700 units × $8.20 per unit) =(22,140) Cost of goods sold (fixed)=(4,200) Gross margin= 28,200 Administrative salaries=(6,200) Depreciation=(4,200) Supplies (2,700 units × $2.20 per unit)=(5,940) Net income$ 11,860 What amount was the company's contribution margin?

$26,460 Correct $11,860 $28,200 $32,400 Answer: $26,460 Explanation Contribution margin = Revenues − Variable expenses Contribution margin = $54,540 − ($22,140 + $5,940) = $26,460

Kirsten believes her company's overhead costs are driven (affected) by the number of direct labor hours because the production process is very labor intensive. During the period, the company produced 5,900 units of Product A requiring a total of 890 labor hours and 3,400 units of Product B requiring a total of 290 labor hours. What allocation rate should be used if the company incurs overhead costs of $34,220?

$29 per labor hour $3.68 per unit $38.45 per labor hour for Product A and $118 per labor hour for Product B None of these. Answer: $29 per labor hour Explanation The company's overhead costs are driven (affected) by the number of direct labor hours because the production process is very labor intensive. As a result, the allocation rate should be based on labor hours. Allocation rate = Overhead cost ÷ Allocation base Allocation rate = $34,220 ÷ (890 labor hours + 290 labor hours) = $29 per labor hour

During its first year of operations, Silverman Company paid $12,385 for direct materials and $10,600 for production workers' wages. Lease payments and utilities on the production facilities amounted to $9,600 while general, selling, and administrative expenses totaled $3,900. The company produced 6,650 units and sold 4,100 units at a price of $7.40 a unit. What is the amount of gross margin for the first year?

$30,340 $10,250 $12,495 $7,355 Answer: 10,250 Explanation Average cost per unit = (Materials cost + Labor costs + Overhead costs) ÷ Number of units produced Average cost per unit = ($12,385 + $10,600 + $9,600) ÷ 6,650 units = $4.90 per unit Cost of goods sold = Number of units sold × Average cost per unit Cost of goods sold = 4,100 units sold × $4.90 per unit = $20,090 Gross margin = Revenue − Cost of goods sold Gross margin = (4,100 units × $7.40 per unit) − $20,090 = $10,250

The following static budget is provided: Per Unit Total Sales. $70 $840,000 Less variable costs: Manufacturing costs 30 360,000 Selling and administrative costs 20 240,000 Contribution margin $20 $240,000 Less fixed costs: Manufacturing costs 78,000 Selling and administrative costs 127,000 Total fixed costs 205,000 Net income $35,000 What will be the overall volume variance if 10,800 units are produced and sold?

$36,000 F $24,000 F $24,000 U $84,000 U Answer: 24,000 U Explanation Static Budget Flexible Budget Volume Variance Sales*$840,000 $756,000 $84,000U Variable manufacturing costs* 360,000 324,000 36,000F Variable selling & administrative costs* 240,000 216,000 24,000F Contribution margin 240,000 216,000 24,000U Fixed manufacturing costs 78,000 78,000 0 Fixed selling & administrative cost 127,000 127,000 0 Net income$35,000 $11,000 $24,000U * Per unit amount × 10,800 units

Markham Company has completed its sales budget for the first quarter of Year 2. Projected credit sales for the first four months of the year are shown below: January$21,000 February$27,000 March$36,000 April$39,000 The company's past records show collection of credit sales as follows: 32% in the month of sale and the balance in the following month. The total cash collection from receivables in March is expected to be:

$36,000. $22,920. $33,120. $29,880. Answer: 29,880 Explanation March collections = (February sales × Percent collected in month following month of sale) + (March sales × Percent collected in month of sale) March collections = ($27,000 × 68%) + ($36,000 × 32%) = $18,360 + $11,520 = $29,880

Sheddon Industries produces two products. The products' identified costs are as follows: Product A. Product B Direct materials$20,000 $15,000 Direct labor 12,000 24,000 The company's overhead costs of $54,000 are allocated based on labor cost. Assume 4,000 units of product A and 5,000 units of Product B are produced. What amount of production costs would be assigned to Product A? (Do not round intermediate calculations.)

$39,000 $93,000 $50,000 None of the answers are correct. Answer: 50,000 Explanation Allocation rate = Total cost to be allocated ÷ Cost driver (allocation base) Allocation rate = $54,000 ÷ ($12,000 + $24,000) = $1.50 per direct labor dollar Allocation per cost object = Allocation rate × Weight of the cost driver for that cost object Allocation of overhead cost to Product A = $1.50 per direct labor dollar × $12,000 = $18,000 Direct material cost of $20,000 + Direct labor cost of $12,000 + Overhead cost of $18,000 = $50,000

The following information is provided for Southall Company: Sales revenue$265,000 Variable manufacturing costs 90,000 Fixed manufacturing costs 70,000 Variable selling and administrative costs 35,000 Fixed selling and administrative costs 30,000 What is this company's contribution margin?

$40,000 $105,000 $70,000 $140,000 Answer: 140,000 Explanation Contribution margin = Revenues − Variable expenses Contribution margin = $265,000 − ($90,000 + $35,000) = $140,000

Martin Company currently produces and sells 55,000 units of product at a selling price of $13. The product has variable costs of $6 per unit and fixed costs of $65,000. The company currently earns a total contribution margin of:

$440,000 $330,000 $385,000 $320,000 Answer: 385,000 Explanation Total contribution margin = [Selling price per unit − Variable costs per unit] × Units sold Total contribution margin = ($13 per unit − $6 per unit) × 55,000 units = $385,000

Alleghany Community College operates four departments. The square footage used by each department is shown below. Department Square Footage Accounting 3,000 Marketing 4,000 Technology 6,000 Sciences 3,000 Total 16,000 Alleghany's annual building rental cost is $240,000. What amount of rent expense should be allocated to the Sciences Department? (Do not round intermediate calculations.)

$45,000 $60,000 $90,000 $240,000 Answer: 45,000 Explanation Allocation rate = Total cost to be allocated ÷ Cost driver (allocation base) Allocation rate = $240,000 ÷ 16,000 sq. ft. = $15.000 per sq. ft. Allocation per cost object = Allocation rate × Weight of the cost driver for that cost object Allocation of overhead cost to Sciences Dept. = $15.000 per sq. ft. × 3,000 sq. ft. = $45,000

During the current year, Winchester Company sold 94,000 units at a selling price of $20 per unit. Variable cost per unit was $14, and Winchester's net income for the year was $54,000. What was the amount of Winchester's fixed costs?

$510,000 $564,000 $1,080,000 $1,826,000 Answer: 510,000 Explanation Sales − Variable costs − Fixed costs = Profit ($20 per unit × 94,000 units) − ($14 per unit × 94,000 units) − Fixed costs = $54,000 $1,880,000 − $1,316,000 − Fixed costs = $54,000 Fixed costs = $564,000 − $54,000 = $510,000

Marsden Company has three departments occupying the following amount of floor space: Department 124,000sq. ft. Department 211,800sq. ft .Department 334,000sq. ft. How much store rent should be allocated to Department 3 if total rent is equal to $109,000? (Do not round intermediate calculations.)

$53,095 $34,000 $18,427 None of the answers are correct. Answer: 53,095 Explanation Allocation rate = Total cost to be allocated ÷ Cost driver (allocation base) Allocation rate = $109,000 ÷ (24,000 sq. ft. + 11,800 sq. ft. + 34,000 sq. ft.) = $109,000 ÷ 69,800 sq. ft. = $1.5616 per sq. ft. Allocation per cost object = Allocation rate × Weight of the cost driver for that cost object Allocation to Department 3 = $1.5616 per sq. ft. × 34,000 sq. ft. = $53,095

Lindsay purchased a raffle ticket for $28. Just before the grand prize drawing two people tried to buy her ticket. The first person offered $125, and another offered $160. What is Lindsay's opportunity cost of keeping the raffle ticket?

$56 $160 $153 $188 Answer: 160 Explanation An opportunity cost is the sacrifice that is incurred in order to obtain an alternative opportunity. Lindsay's opportunity cost of keeping the raffle ticket is the $160 offered by the second person.

Pickard Company pays its sales staff a base salary of $5,500 a month plus a $2.50 commission for each product sold. If a salesperson sells 550 units of product in January, the employee would be paid:

$6,875. $5,500. $1,375. $4,125. Answer: 6,875 Explanation Total cost = Fixed cost + Variable cost Total cost = $5,500 + (550 units × $2.50 per unit) = $6,875

The Bernard Company provided the following information from its financial records: Net income$200,000. Total stockholders' equity$800,000 Common dividends $10,000 Common shares outstanding, 12/31 120,000 Preferred rights$150,000 What is the company's book value per share?

$6.67 $5.42 $1.67 $1.58 Answer: 5.42 Explanation Book value per common share = (Stockholders' equity − Preferred rights) ÷ Outstanding common shares Book value per common share = ($800,000 − $150,000) ÷ 120,000 = $650,000 ÷ 120,000 = $5.42 per share

Hernandez Company expects credit sales for January to be $40,000. Cash sales are expected to be $20,000. The company expects credit and cash sales to increase 12% for the month of February. Credit sales are collected in the month following the month in which sales are made. Based on this information, the amount of cash collections in February would be:

$62,400. $67,200. $60,000. $64,800. Answer: 62,400 Explanation Budgeted cash receipts for February = (January credit sales × Percent collected in second month following month of sale) + (February credit sales × Percent collected in month of sale) + February cash sales Budgeted cash receipts for February = ($40,000 × 100%) + [$40,000 × 112% × (100% - 100%)] + ($20,000 × 112%) = $40,000 + $0 + $22,400 = $62,400

Skymont Company wants an ending inventory each month equal to 25% of that month's cost of goods sold. Cost of goods sold for February is projected at $90,000. Ending inventory at the end of January was $18,000. Based on this information, purchases for February would be:

$67,500. $94,500. Correct $72,000. $85,500. Answer: 94,500 Explanation Budgeted purchases of inventory = Budgeted cost of goods sold + Desired ending inventory − Beginning inventory Budgeted purchases of inventory in February = Budgeted cost of goods sold + (Budgeted cost of goods sold in February × 25%) − Beginning inventory Budgeted purchases of inventory in February = $90,000 + ($90,000 × 25%) − $18,000 = $90,000 + $22,500 − $18,000 = $94,500

QRC Company is trying to decide which one of two alternatives it will accept. The costs and revenues associated with each alternative are listed below: Alternative A Alternative B Projected revenue$165,000 $210,000 Unit-level costs 31,000 42,000 Batch-level costs 18,500 30,000 Product-level costs 21,000 23,000 Facility-level costs 16,000 18,500 What is the differential revenue for this decision? $70,000 $45,000 $165,000 $210,000

$70,000 $45,000 $165,000 $210,000 Answer: 45,000 Explanation Differential revenue = Alternative A − Alternative B Differential revenue = $165,000 − $210,000 = $45,000

During its first year of operations, Silverman Company paid $11,440 for direct materials and $9,900 for production workers' wages. Lease payments and utilities on the production facilities amounted to $8,900 while general, selling, and administrative expenses totaled $4,400. The company produced 5,600 units and sold 3,400 units at a price of $7.90 a unit. What is the amount of finished goods inventory on the balance sheet at year-end?

$8,500 $5,940 $11,880 $2,200 Answer: 11,880 Explanation Average cost per unit = (Materials cost + Labor costs + Overhead costs) ÷ Number of units produced Average cost per unit = ($11,440 + $9,900 + $8,900) ÷ 5,600 units = $5.40 per unit Finished goods inventory = Unsold units × Average cost per unit Finished goods inventory = (5,600 units produced − 3,400 units sold) × $5.40 per unit = $11,880

The following balance sheet information is provided for Apex Company for Year 2: Assets Cash$4,200 Accounts receivable10,350 Inventory14,100 Prepaid expenses900 Plant and equipment, net of depreciation18,800 Land12,700 Total assets$61,050 Liabilities and stockholders' equity Accounts payable$2,370 Salaries payable8,930 Bonds payable (due in ten years)8,500 Common stock, no par20,000 Retained earnings21,250 Total liabilities and stockholders' equity$61,050 What is the company's working capital?

$8,850 $18,250 $26,280 $3,250 Answer: 18,250 Explanation Working capital = Current assets − Current liabilities Working capital = ($4,200 + $10,350 + $14,100 + $900) − ($2,370 + $8,930) = $29,550 − $11,300 = $18,250

Ashley projects that she can get $140,000 cash per year for 5 years on a real estate investment project. If Ashley wants to earn a rate of return of 12%, what is the maximum that she should pay for the investment? (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided. Round your answer to the nearest dollar.)

$86,929 $443,782 $504,669 $630,000 Answer: $504,669 Explanation Net present value = Expected cash flow × PV factorNet present value = $140,000 × 3.604776 = $504,669 (rounded)PV factor from Appendix Table 2; n = 5 and i = 12

Sheddon Industries produces two products. The products' identified costs are as follows: Product A Product B Direct materials$28,000 $23,000 Direct labor 18,000 32,000 The company's overhead costs of $62,000 are allocated based on direct labor cost. Assume 12,000 units of product A and 13,000 units of Product B are produced. What is the cost per unit for product B? (Do not round intermediate calculations.)

$9.28 $7.28 $10.01 None of the answers are correct. Answer: 7.28 Explanation Total costs to produce product B = (Direct material cost + Direct labor cost + Overhead cost) Total costs to produce product B = $23,000 + $32,000 + [$62,000 ÷ ($18,000 + $32,000) × $32,000] Total costs to produce product B = $23,000 + $32,000 + $39,680 = $94,680 Cost per unit for product B = Total costs to produce product B ÷ Number of units produced Cost per unit for product B = $94,680 ÷ 13,000 = $7.28 per unit

Pierce Company's break-even point is 33,000 units. Its product sells for $29 and has a $19 variable cost per unit. What is the company's total fixed cost amount?

$957,000 $330,000 $627,000 Fixed costs cannot be computed with the information provided. Answer: 330,000 Explanation Sales − Variable costs − Fixed costs = Profit ($29 per unit × 33,000 units) − ($19 per unit × 33,000 units) − Fixed costs = $0 Fixed costs = $957,000 − $627,000 = $330,000

The following income statement is provided for Vargas, Inc. Sales revenue (1,700 units × $19.20 per unit)=$32,640 Cost of goods sold (variable; 1,700 units × $9.20 per unit) =(15,640) Cost of goods sold (fixed) =(3,200) Gross margin 13,800 Administrative salaries (5,200) Depreciation (4,200) Supplies (1,700 units × $1.20 per unit)= (2,040) Net income$2,360 What is this company's magnitude of operating leverage?

0.17 0.28 6.34 5.85 Answer: 6.34 Explanation Contribution margin = Revenues − Variable expense sContribution margin = $32,640 − ($15,640 + $2,040) = $14,960 Magnitude of operating leverage = Contribution margin ÷ Net income Magnitude of operating leverage = $14,960 ÷ $2,360 = 6.34

The Miller Company reported gross sales of $800,000, sales returns and allowances of $6,500 and sales discounts of $6,500. The company has average total assets of $450,000, of which $225,000 is property, plant, and equipment. What is the company's asset turnover ratio? (Round your answer to 2 decimal places.)

0.57 times 1.75 times 1.81 times 1.78 times Answer: 1.75 Explanation Asset turnover = Net credit sales ÷ Average assets Asset turnover = ($800,000 − $6,500 − $6,500) ÷ $450,000 = $787,000 ÷ $450,000 = 1.75 times

Campbell Candy Corporation desires a 14% return on investment (ROI) on all operations. The following information was available for the company for the current year: Sales$26,000 Operating income$5,200 Turnover 0.5 What is the corporation's ROI? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

10.00% 14.00% 20.00% Impossible to determine from the information given. Answer: 10.00% Explanation ROI = Margin × TurnoverROI = (Operating income ÷ Sales) × TurnoverROI = ($5,200 ÷ $26,000) × 0.5 = 20.00 × 0.5 = 10.00%

The Crestar Company reported net income of $81,400 on 17,000 average outstanding common shares. Preferred dividends total $11,700. On the most recent trading day, the preferred shares sold at $47 and the common shares sold at $77. What is this company's current price-earnings ratio? (Do not round your intermediate calculations.)

16.08 18.78 20.88 None of these answers are correct. Answer: 18.78 Earnings per share = (Net income − Preferred stock dividends) ÷ Average shares outstanding Earnings per share = ($81,400 − $11,700) ÷ 17,000 shares = $69,700 ÷ 17,000 shares = $4.1 per share Price-earnings ratio = Market price per share ÷ Earnings per share Price-earnings ratio = $77 per share ÷ $4.1 per share = 18.78

Terra Company has two divisions, the Retail Division and the Wholesale Division. The following information was gathered for the two divisions for the current year: Retail Division Wholesale Division Operating income$6,600,000 $3,100,000 Operating assets$36,600,000 $16,600,000 Assuming that these are the only divisions of Terra Company, what is the ROI for the company as a whole?

18.03% 18.23% 18.67% 36.71% Answer: 18.23

The following partial balance sheet is provided for Groome Company: Liabilities and Stockholders' Equity Accounts payable$7,900 Salaries payable13,000 Bonds payable (due in ten years)23,000 Common stock, no par27,700 Retained earnings46,900 Total liabilities and stockholders' equity$118,500 What is the company's debt to assets ratio? (Rounded to nearest whole percent.)

19% 49% 37% Cannot be determined with the information given. Answer: 37 Explanation Recall that total assets equal total liabilities and stockholders' equity. Debt to assets = Total liabilities ÷ Total assets Debt to assets = ($7,900 + $13,000 + $23,000) ÷ $118,500 = $43,900 ÷ $118,500 = 37%

For the last two years BRC Company had net income as follows: Year 1. Year 2 Net Income$82,000$102,000 What was the percentage change in income from Year 1 to Year 2?

19.61% increase 19.61% decrease 24.39% increase 24.39% decrease Answer: 24.39% increase Explanation % change = (Alternative measure − Base measure) ÷ Base measure % change = ($102,000 − $82,000) ÷ $82,000 = 24.39%

The following income statement is provided for Grant, Inc. Sales revenue (3,100 @ $14.40 per unit)$44,640 Variable costs (3,100 @ $6.40 per unit) 19,840 Fixed costs 9,400 Net income$15,400 What is this company's magnitude of operating leverage?

2.90 2.25 1.29 1.61 Answer: 1.61 Explanation Magnitude of operating leverage = Contribution margin ÷ Net income Magnitude of operating leverage = ($44,640 − $19,840) ÷ $15,400 = 1.61

During its first year of operations, Forrest Company paid $39,760 for direct materials and $50,400 in wages for production workers. Lease payments, utility costs, and depreciation on factory equipment totaled $14,600. General, selling, and administrative expenses were $20,400. The average cost to produce one unit was $5.40. How many units were produced during the period?

20,474 19,400 23,178 None of these. Answer: 19,400 Explanation Average cost per unit = (Materials cost + Labor costs + Overhead costs) ÷ Number of units produced $5.40 per unit = ($39,760 + $50,400 + $14,600) ÷ Number of units produced $5.40 per unit = $104,760 ÷ Number of units produced Number of units produced = $104,760 ÷ $5.40 = 19,400 units

The following balance sheet information is provided for Patton Company: Assets Year 2 Year 1 Cash$2,500$2,100 Accounts receivable$12,000$14,000 Inventory$21,500$28,500 Assuming Year 2 cost of goods sold is $365,000, what is the company's average days to sell inventory? (Use 365 days in a year. Do not round your intermediate calculations.)

25.00 days 21.50 days 28.50 days 52.00 days Answer: 25.00 days Explanation Inventory turnover = Cost of goods sold ÷ [(Beginning inventory + ending inventory) ÷ 2] Inventory turnover = $365,000 ÷ [($28,500 + $21,500) ÷ 2] = 365,000 ÷ $25,000 = 14.60 times Average days to sell inventory = 365 days ÷ Inventory turnover Average days to sell inventory = 365 days ÷ 14.60 times = 25.00 days

The Phibbs Company paid total cash dividends of $64,600 on 19,000 outstanding common shares. On the most recent trading day, the common shares sold at $74. What is this company's dividend yield?

29.41% 2.79% 4.59% 21.31% Answer: 4.59 Explanation Dividend yield = Dividends per share ÷ Market price per share Dividend yield = ($64,600 ÷ 19,000 shares) ÷ $74 per share = $3.4 per share ÷ $74 per share = 4.59%

The Fortune Company reported the following income for Year 2: Sales$132,000 Cost of goods sold81,000 Gross margin$51,000 Selling and administrative expense17,000 Operating income$34,000 Interest expense5,200 Income before taxes$28,800 Income tax expense8,640 Net income$20,160 What is the company's number of times interest is earned ratio?

3.9 times 5.5 times 6.5 times None of these answers are correct. Answer: 6.5 Explanation Times interest earned = (Net income + Taxes + Interest expense) ÷ Interest expense Times interest earned = $34,000 ÷ $5,200 = 6.5 times

The Poole Company reported the following income for Year 2: Sales$34,500 Cost of goods sold8,900 Gross margin$25,600 Selling and administrative expense10,900 Operating income$14,700 Interest expense4,900 Income before taxes$9,800 Income tax expense2,940 Net income$6,860 What is the company's net margin? (Round your answer to 2 decimal places.)

42.61% 28.41% 74.20% 19.88% Answer: 19.88 Explanation Net margin = Net income ÷ Net sales Net margin = $6,860 ÷ $34,500 = 19.88%

The Dennis Company reported net income of $51,000 on sales of $310,000. The company has average total assets of $515,000 and average total liabilities of $110,000. What is the company's return on equity ratio?

9.9% 16.4% 12.6% 46.36% Answer: 12.6 Explanation Return on equity = Net income ÷ Average stockholders' equity Return on equity = Net income ÷ (Average total assets − Average total liabilities) Return on equity = $51,000 ÷ ($515,000 − $110,000) = 12.6%

Evergreen Company has two investment opportunities. Both investments cost $5,000 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below: Investment I Investment II Period 1 $1,000 $3,000 Period 2 1,000 2,000 Period 3 2,000 2,000 Period 4 4,000 1,000 Total $8,000 $8,000 Select the correct statement.

Evergreen should choose Investment II because it generates more immediate cash inflows. Evergreen should choose Investment I because of the time value of money. Time value of money techniques are not useful for comparing these investments. Evergreen should be indifferent between the two investments because they provide the same total cash inflows. Answer: Evergreen should choose Investment II because it generates more immediate cash inflows. Explanation The expected cash flows are equal in the two investment opportunities. The time value of money concept recognizes that the present value of a dollar received in the future is less than a dollar. As a result, the cash flows expected from Investment II are more preferable to those expected from Investment I since the cash flows occur earlier during the four periods.

All of the following are capital investment decisions except:

acquiring $430,000 of common stock. buying a $4,075,000 manufacturing plant. purchasing equipment for $42,400. paying $527,000 to renovate a restaurant. Answer: acquiring $430,000 of common stock. Explanation Purchases of long-term operational assets are capital investments. Capital investments differ from stock and bond investments in an important respect. Investments in stocks and bonds can be sold in organized markets. In contrast, investments in capital assets normally can be recovered only by using those assets. Once a company purchases a capital asset, it is committed to that investment for an extended period of time.