ACCT 245- FINAL

Decision Making: Six Key Concepts

1) Define the alternatives 2) Distinguish between relevant and irrelevant costs and benefits 3) Perform differential analysis 4) Identify sunk costs 5) Identify future costs and benefits that do not differ between alternatives 6) Identify opportunity costs

Duffy Inc., had net income of $95,000 for the year just ended. Duffy collected the following additional information to prepare its statement of cash flows for the year. Accounts Receivable increased by $191,000, Inventory decrease by $32,000, Accounts Payable decreased by $49,000, and Depreciation charges amounted to $46,000. Duffy uses the indirect method to prepare its statement of cash flows. What is Duffy's net cash provided by (used on) operating activities?

$(67,000)

Product ABC has a contribution margin per unit of $10.00. Each unit of ABC requires 5 minutes of machine time and 10 minutes of labor time. Product XYZ has a contribution margin per unit of $15.00 and each unit requires 10 minutes of machine time and 5 minutes of labor time. If the company's constraint is labor hours, the contribution margin per unit of constraint for Product XYZ $______ per minute.

3

Adams Inc., began the year with $495,000 in the Equipment account. During the year they sold equipment that had originally cost $50,000 for $20,000. The ending balance in the Equipment account was $650,000. Which of the following statements are true?

-Adams will report a cash inflow investing activities of $20,000 -Adams cash outflow for the purchase of equipment is $205,000

Which of the following are ways in which to calculate the benefit of selecting one alternative over another?

-An analysis that just looks at the relevant costs and benefits -An analysis that looks at all costs and benefits and identifies those that are differential -The difference between the net operating income for the two alternatives

When analyzing a company's earnings quality, earnings are considered to be higher quality or more indicative of performance when they:

-Are computed using conservative estimates -Are not a result of high inflation -Are corrected with cash flow from operating activities

Average Costs:

-Are often misleading -Contain suck costs

Typical capital budgeting cash outflow include:

-Initial equipment investments -Installation costs -Working capital invested

Capital budgeting methods that focus on cash flows rather incremental operating income are:

-Internal Rates of Return -Net Present Value -Payback

Which of the following of decisions involves deciding whether to accept or reject an order that is outside the scope of normal sales? A) Make or Buy B) Special Order C) Sell of Process Further D) Keep or Drop

B) Special Order

The involvement by a company in more than one of the activities in the entire value chain from development though production distractions, sales, and after-sales service is called ______. A) Opportunity Cost B) Vertical Integration C) Relevant Cost D) Avoidable Cost

B) Vertical Integration

When a company does not have enough capacity to produce all of the products and sales volume demanded by their customers, this leads to ______. A) Keep or drop decisions B) Volume trade-off decisions C) Sell or process further decisions D) Make or buy decisions

B) Volume trade-off decisions

Which of the following statements are true?

-When using the internal rate of return method, the cost of capital is used as the hurdle rate -When the net present value method is used, the discount rate equals the hurdle rate -The cost of capital may be used to screen out undesirable projects

When preparing a statement of cash flows:

Both financing and investing activities are reported at gross amounts

The machine or process that is limited overall output is a(n):

Bottleneck

If net cash flow from operating activities is less than current liabilities, it indicates the company:

Did not generate enough operation cash flow to pay bills at the end of the period

Calculating the present value of money is referred to as ______ cash flows.

Discounting

Suppose that a project's net present value is negative, but the project would provide intangible benefits that have not yet been estimated. To estimate the annual value of intangible benefits needed to accept the project, ______ the negative net present value excluding intangible benefits by the ______.

Divide, present value factor for an annuity

Retained earnings is decreased by:

Dividends paid

Some decision only have one alternative

False

The first step in computing net cash provided by operating activities is to subtract depreciation from net income.

False

True or False: Opportunity costs are not found in accounting records because they are not relevant to decisions.

False

When calculating the payback period, the deduction on the investment is excluded in the calculation of net cash flow.

False

All transactions (other than interest payments) involving borrowing from creditors or repaying creditors as well as transactions with the company's owners are ______ activities.

Financing

Cardinal Company issues new common stock for $50,000. The transaction is considered a(n) ______ activity on the stamen t of cash flow.

Financing

Salvage Value

Finds gained from the sale of a capital asset

When making a volume-trade-off decision, managers should ignore:

Fixed costs

An investment of $10,000 today is estimated to return $11,500 a year from now. The $11,500 is called the ______ of the investment value

Future Value

In general, the less sensitive customers are to price, the ______ the optimal selling price will be.

Higher

To maximize total contribution margin when a constrained resource exists, produce the products with the:

Highest contribution margin per unit of the constrained resources

The statement of cash flows:

Is one of the required financial statements

Responsibility for designing a product that an be made for no more than the target cost is given to the:

Product Development Team

Responsibility for designing a product that can be made for no more than the target cost is given to the:

Product Development Team

Which method should be used when ranking competing projects with different initial investments?

Profitability Index

A product's economic value to the customers based on the ______ value and the ______ value.

Reference, Differentiation

When using the simple rate of return, the initial investment should be reduced by the ______ value of old equipment.

Salvage

Which of he following techniques describe how a bottleneck should be managed?

-Focus business pieces improvement efforts on the bottleneck -Ensure there is minimal lost time at the bottleneck due to breakdowns and set-ups Find ways to increase the capacity of the bottleneck

The capacity of a bottleneck can be effectively increased by:

-Focusing business improvements efforts on the bottleneck -Subcontracting some of the processing that would be done in that area

Mangers may choose to retain an unprofitable product line because it:

-Helps sell other products -Attracts customers

Which of the following are ways to increase the capacity of a bottleneck?

-Investing in additional machines as the bottleneck -Shifting workers from process that are bottlenecks to the process that is the bottleneck

Which of the following may be an advantage go making a part rather than buying it.

-Less dependence on outside suppliers -A smooth flow of parts and materials for production

The target costing approach was developed because:

-Most of a product's cost is determined in the design stage -The market really determines prices

The formula used to calculate markup percentage on absorption cost includes:

-Selling, general and absorption expenses -Required ROI multiplied by investment -Unit product cost multiplied by unit sales

Factors in determining the markup percentage using the absorption costing approach cost-plus pricing includes:

-Selling, general, and administrative expenses -Absorption costing unit product cost -Adequate return on investment

One of the great dangers in allocating common ______ costs is that such allocations can make a product lune look less profitable than it really is.

Fixed

When making a volume-trade off decision, managers should ignore:

Fixed costs

The lowest price a company can charge and still makes incremental profits the sale is the price ______.

Floor

Initial Investment

Funds needed to purchase a capital asset or begin a capital investment project

Generally speaking, managers should set higher prices when demand is:

Inelastic

If a price change has little effect on unit sales, the demand is considered to be:

Inelastic

A decision to carry one of the activists in the call chain internally, rather to buy externally from a supplier, is called a(n) ______ or _______ decision.

Make or Buy

If a cost is traced to a segment using activity-based costing, out:

May or may not be an avoidance cost of this segment

Avoidable or Unavoidable: Cost of machinery purchased for the Orange County division.

Unavoidable

Avoidable or Unavoidable: Cost of the private jet purchased for the company management's use.

Unavoidable

Avoidable or Unavoidable: General management expenses allocated to the Orange County division.

Unavoidable

Activities raging from development to production to after-sales service are called a(n) ______ ______.

Value chain

Less dependence on supplies is in an advantage of:

Vertical Integration

When a company is involved in more than one activity in the entire value chain it is, ______ ______.

Vertically Integrated

When demand for products exceeds the production capacity, a ______ ______-______ decision must be made.

Volume trade-off

When shoal a special order be accepted?

When the incremental revenue from special order exceeds the incremental costs of the order

The capacity of bottleneck can be effectively increased by:

-Focusing business process improvement efforts on the bottleneck -Subcontracting some of the processing that would be done in that area

Managers may choose to retain an unprofitable product line because it:

-Help sell other products -Attracts customers

When making a capital budgeting decision, it is most useful to calculate the payback period:

-If a company is "cash poor" -As part of the screening process

A manager with a current ROI of 22% has been offered a project with a positive net present value and a simple rate of return of 18%. Which of the following statements are true?

-If the manager is evaluated based on ROI he will probably reject the project -The company will want the manager to a accept the project

The simple rate of return:

-Ignores the time value of money -Fluctuates doom year to year along with fluctuation in revenue and expense

To effectively deal with a constraint

-Improvements should focus on the constraint -Efforts should be focused on the weakest link

When preparing the operation activities section using the indirect method, which of the following are added back to net income?

-Increase in wages payable -Decrease in account receivable

The payback method:

-Is not a true measure of investment profitability -Ignores all cash flow that occur after the payback period -Does not consider the time value of money

When using net present value to compare projects, the total cost approach:

-Is the most flexible method available to compare projects -Includes all cash inflows and outflows under each alternative

When preparing the operating activities section of the statement of cash flows using the indirect method:

-Items that do not affect cash flow are removed from net income -Net income is adjusted to a cash basis

Decision Making: Concepts

-Keep or Drop Decisions -Make or Buy Decisions -Special order Decisions -Sell or Process Further Decisions

Typical capital budgeting decision include:

-Lease or buy decisions -Equipment selection decisions -Cost reduction decisions

The capital budgeting approaches that use discounted cash flows.

-Net Present Value Method -Internal Rate of Return Method

When considering accepting a special order:

-Normal sales must not be affected -There must be idle capacity -Incremental revenue should equal increment cost

Which of the following are true regarding the time value of money?

-Project that provides earlier returns are preferable to those that promise later returns -By collecting a project's return quickly, the investors has the opportunity to re-invest that money to earn even more

Preference decisions are also called ______ decision

-Ranking -Rationing

A product's differentiation value can arise by enabling customers to ______ the best available alternative.

-Realize greater cost saving than -Generate more sales and contribution margin than

When preparing the financing activities section of the statement of cash flows:

-Retained earning requires additional analysis -Increases in bonds payable are added

A company is considering buying a component part that they currently make. Which of the following items related to the equipment currently being used to make the components are relevant to the decision?

-Salvage value -Alternative use for the equipment

A company is considering buying a component part that they currently make. Which of the following item related to the equipment currently being used to make the component are relevant to the decision?

-Salvage value -Alternative use of the equipment

A company is considered buying a component part that they currently make. Which of the following items related to the equipment currently being used to make the component are relevant to he decision?

-Salvage value -Alternative used from the equipment

Which of the following are ways to increase of a bottleneck?

-Shifting workers from processes that are not bottlenecks to the process that is the bottleneck -Investing in additional machines at the bottleneck

When preparing the operating activities section under the direct method:

-The difference between cash receipts and disbursementer is calculated -Cash receipts are reported instead of income statement reviews

The net present value of a project is:

-The difference between the present value of cash inflows and present value of cash outflows for a project -Used in determining whether or not a project is an acceptable capital investment

A gain on the sale of an asset is dictated in the operating activities section of the statement of cash flows because:

-The gain increases net income, but is not a cash flow -The entire proceeds from the sale must be reported in the investing section of the statement

Key concepts in preparing the statement of cash flow include:

-The operating actives section may be prepared using the direct or indirect method -The statement is divided into three sections: operating, investing, and financing activities -Gross cash flows must be reported in the investing and financing section

ABC Lumber spent $1,000 cutting down a tree. The result was 40 pieces of unfinished lumber that sell for $20.00 each and 100 bags of sawdust that sell for $1.00 each. If the unfinished pieces of lumber are processed into finished lumber at a cost of $8.00 each, they will sell for $35.00. A bad of sawdust can be processed into Presto Logs that sells fro $1.25 at a cost of $0.75 per bag. Which of the following statements are true concerting whether the unfinished piece of lumber should be processed into finished lumber and whether the sawdust should be processed onto Presto Logs?

-The price of unfinished lumber should be processed -The sawdust should be sold as is without being processed into Presto Logs.

Investing activities include:

-The sale of used equipment -The purchase of a new building

When a product has an established market price

-There is not reason for suppliers to change less than the established price -Consumers will not pay more than the estimated price

Under the direct method, the operating activities section of the statements of cash flows:

-Treats cash disbursements as expenses -Reports cash collected from customers instead of revenue

Typical capital budgeting cash inflows include:

-Working capital released -Cost reduction -Salvage value

Product DGH has a monthly demand of 5,000 units. Its contribution margin is $18 per unit and $36 per direct labor hour. Product RBG has a monthly demand of 4,000 units. It's contribution margin is $15 per unit and $60 per direct labor hour. If a company only has 1,500 direct labor hours available, the company should produce ______ units of Product DGH and ______ units to Product RBG.

1,000 & 4,000

An investment proposal with an initial investment of $100,000 generates annual net cash inflow of $20,000 for a period of 10 years. the project has a net present value of $10,000. What is the investment proposal's payback period?

5 years

Spicer Dentistry is considering the purchase of a new x-ray machine. The machine costs $2,400 and has a useful life of 10 years. The new machine is expected to reduce operating costs by $400 per year. The payback period for the X-ray machine is ______ years.

6

State Bank is implementing a new marketing campaign that requires an initial investment of $35,000. If the project profitability index is 0.2, the net present value of the campaign's future cash flow is $______.

7,000

The first step in decision making is to: A) Define the alternative B) Perform a differential analysis C) Identify relevant costs and benefits

A) Define the alternatve

When making decisions to either buy a movie ticket or rent a DVD, the cost of the movie ticket is a(n) _______ cost. A) Incremental B) Irrelevant C) Avoidable D) Sunk

A) Incremental C) Avoidance

When analyzing two alternatives which is NOT true? A) Isolating relevant cost gives a different answer than using all costs B) Isolating relevant costs is classed the differential cost approach C) Mining irrelevant costs may cause confusion and distract attention from the information that is critical

A) Isolating relevant costs gives a different answer than using all costs

Steps in the absorption costing approach are: A) Multiply unit production costs by 1+ markup percentage B) determine markup percentage on absorption cost C) Calculate unit product costs D) Calculate the price elastically of demand

A) Multiply unit product cost by 1+ markup percentage B) Determine markup percentage on absorption costing C) Calculate unit product costs

Costs that have been incurred and cannot be eliminated regardless of the alternative chose are ______. A) Sunk Costs B) Unavoidable Costs C) Relevant Costs D) Irrelevant Costs

A) Sunk Costs

The simple rate of return is also referred to as the ______ or _______ rate of return.

Accounting, Unadjusted

Luddington, Inc., reported a $100,000 loss of the sale of equipment on its income statement. Which of the following is the correct treatment within the operating activities section of the stamen of cash flows using the indirect method?

Add back $100,000 to net income

When the in indirect method is used to adjust net income to net cash provided by operating activities, the first step is to ______.

Add depreciation charges to net income

Depreciation expense is ______ net income when preparing the operating activities section using the _______ method.

Added to, direct

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

The simple rate of return is also called all of the following except ______.

Annual Rate of Return

When a project with a negative NPV has significant intangible benefits, the:

Annual intangible benefit necessary to make the investments worthwhile should be calculated

A series of equal cash flows is a(n) ______.

Annuity

An investment that pays the investors $1,000 per year for the next 10 years is an example of a(n) ______.

Annuity

Beginning balance + debits - Credits = Ending balance is the basic equation for:

Asset Accounts

When preparing the operating activity section of the statement of cash flows using the indirect method increases in current ______ are subtracted from and increases in current ______ are added to net operating income.

Assets, liabilities

When computing the simple rate of return, the annual incremental net operating income in the numerator should ______ the investment's depreciation charges.

Be reduced by

When the cash flows associate with an investment project change demo year to year, the payback period must be calculated

By tracking the unrecovered investment year by year

Future cash flows expected from investment projects:

Can be difficult to estimate

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

because they provide reference prices that influence the price elasticity of demand, ______ have an important effect on a company's pricing decision.

Competitors

The phenomenon of earning interest on both the interstate's and the amount invested is know as ______.

Compound Interest

An investor deposits $100.00 and earns $6.00 of interstate's the first year and $6.36 of interstate's in the second year. This means the investment is earning 6% ______ interest.

Compounded

If some products must be cut back because of a constraint, produce the products with the highest:

Contribution margin per i units of constrained resource

When a constraint exists, companies need to focus on maximizing

Contribution margin per unit of constraint

When reporting operating activities:

Debits and credits are netted against each other

When calculating net cash flows from operating actives, the change in accounts payable is subtracted from net income when accounts payable _______ during the period.

Decrease

Trouble for a company may be indicated when increases in inventory and accounts payable are accompanied by:

Decreasing sales

When computing the payback period for a new piece of equipment, the salvage value of the equipment being replaced is:

Deducted from the cost of the new equipment

When preparing the operating section using the indirect method, ______ is added back to net income.

Depreciation expense

Focusing on future costs and benefits that are not the same between alternatives is:

Differential Analysis

The income statement is reconstructed on a cash basis from top to bottom when the ______ method is used to prepare the operating activities section of the statement of cash flows.

Direct

Most companies use the indirect method to prepare the statements of cash flows for external reporting purposes because the ______.

Direct method required more work

The interest factor used to find the present value is called the ______ rate.

Discount

Because of the time value of money, projects that promise ______ returns are preferable to those that promise the opposite.

Earlier

Which of the following of the advantage of buying a part instead of making it?

Economies of scale can result in higher quality and lower cost for suppliers

Which of the following is an advantage of buying a part instead of making it?

Economies of scale can result in higher quality and lower costs from suppliers

On the statements of cash flows is defined as cash and cash ______.

Equivalents

The statement of cash flows:

Focuses on activities that affect the cash balance

To determine if a project is acceptable compare the internal rate of return to the company's:

Hurdle Rate

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

Income Statements

The ______ method of computing operating activities reconciles net income to net cash flow.

Indirect

Net cash flows from operating activities will be identical under both the ______ and the _______ methods.

Indirect, Direct

When a product is past the slit-off point, but is not yet a finished product, it is called a(n) _______ product.

Intermediate

Investment required/Annual net cash inflow is the formula to find the factor that enables calculation of the

Internal Rate of Return

The ______ is defined as the discount rate at which the present value of a project's cash inflows will equal the present value of its cash outflows.

Internal Rate of Return

Purchases of equipment and the sale of land are transactions that would be classified as ______ activities.

Investing

What section of the statement of cash flows shows the cash paid for property, plant and equipment purchases?

Investing

In an equipment capital budgeting decision, recovering the original investment means that the:

Investment has generated enough cash inflows to completely cover the cost of the equipment

When the annual net cash flow is the same each year, the payback period equals the ______ required divided by the annual net cash ______.

Investments, Inflow

Costs and benefits that should be ignored when making decisions are called _______ costs and benefits.

Irrelevent

In deciding whether to drive to a location to take the train, the relaxation factor comes from not have to drive ______ relevant to the decision.

Is

To construct the statement of cash flows, the change in retained earnings:

Is broken down into net income and dividends paid to stockholders

It is important to know the present value of an investment because a dollar:

Is worth more today than it will be worth a year from today

When the outcomes of the net present value method and the internal rate of return method do not agree,:

It is best to rely on the net present value method

The costs incurred to the split-off in a process in which two or more products are produced from a common input are known as ______ costs.

Joint

The split-off point in the manufacturing process at which the ______ products can be recognized as separate products.

Joint

Two or more products that are produced from a common input are known as ______ products.

Joint

If, by dropping a product line, a company cannot avoid as mush in fixed costs as it loses in contribution margin, the company should ______ the product line

Keep

When a capital budgeting decision does not involve any revenues, the most desirable alternatives in the one with the:

Least total cost from a present value perspective

Which method involves selecting the cheapest alternative when revenue are not involved?

Least-Cost Approach

The present trend appears to be towards ______ vertical integration.

Less

The Eye Clinic of Dr. Christensen is investing in some equipment to perform corrective eye surgery. It is expected that the equipment purchase will generate an internal rate of return of 24%. This equipment was chosen over equipment to perform cataract eye surgery. Thus, the internal rate of return of the cataract eye surgery equipment must have been:

Less than the internal rate of return of the corrective eye surgery equipment

A negative net present value indicted that the project's return is ______.

Less than the minimum required rate of return

When preparing the statement of cash flows indirect method, a(n) ______ on the sale of investment asset is added back to net income.

Loss

Which of the following statements are true regarding gains and losses of fixed assets when preparing the operating activity section of the statement of cash flows using the indirect method?

Losses are added back to net income and gains are subtracted from income

In general, the more sensitive customers are to prices, the ______ the optical selling price will be.

Lower

Freemont Company's Account Payable decrease by $4,000 and its Income Taxes Payable increased by $3,000 during the year. Which of the following is the correct treatment within the operating activities section of the statement of cash flows using the indirect method?

The change in Accounts Payable is subtracted from net income; the change in Income Taxes Payable is added to net income

An investment requires committing funds today with:

The expectation of earning a return of those funds in the future

Which of the following statements is false?

The net present value method assumes that cash flow are not reinvested

Cash inflows related to revenue and expense transactions that affect net income are generated by _______ activities.

Operating

Changes in non cash balance sheet accounts the directly affect net income are classified as ______ activities.

Operating

Start-up companies often have negative net cash provided by ______.

Operating Activities

The three sections of cash flow reports results from ______ activities, ______ activities and ______ activities.

Operating, Investing, Financing

If a company has a resource that could be used for something else, the _______ cost is the profit that could be derived from the best alternative use fo the resource.

Opportunity

Stephan Photography has an 18% required rate of return and is analyzing comporting investments in new camera equipment. Option A has a project profitability index of 0.16, and Option B has a project profitability index of 0.13. The best choice of Stephan Photography would be:

Option A

When panning a trip and deciding whether to drive or fly, the ______ is a suck costs and should be ignored.

Original cost of the car

Actual cash outlays for operating expenses are:

Out-of-Pocket Costs

The basic premise of the ______ method is that the more quickly the cost of an investment can be recovered, the more desirable the more desirable the investment is

Payback

Investments required/Annual net cash inflow is the formula for the:

Payback Period

Which of the following ignores the time value of money?

Payback Period

The length of time that it takes for a project to recover its initial cost from the net cash inflows that it generates is the ______ ______.

Payback period

Product markup is generally expressed as a(n) _______ of costs.

Percentage

One of the two broad categories of capital budgeting decisions, a ______ decision, relates to selecting from among several acceptable alternatives

Preference

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

Preference, Screening

You will receive $110 in 1 year if you invest $100 today. The $100 represents the ______ ______ of the $110.

Present value

Costs and benefits that always differ between alternatives are _______ costs and benefits.

Relevant

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

Relevant

What is ROI

Return on investment

It is profitable to container procession a joint product after the split-off point, so long as the incremental ______ from such processing exceeds the incremental processing cost incurred after the split-off point

Revenue

It is profitable to continue processing a joint product after the split-off point, so ling as the incremental ______ from such processing exceeds the incremental processing cost incurred after the split-off point.

Revenue

One of the two broad categories of capital budgeting decisions, a ______ decision, relates to whether a proposed project is acceptable based on a preset criterion.

Screening

The cost of capital service as a ______ tool.

Screening

Which of the following is NOT another term used to describe preference decision making?

Screening Decisions

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

Screening, Preference

Which of the following is NOT a category for capital budgeting decisions?

Selective Decisions

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

Sell or Process Further

When making a decision, quantitative differences between alternatives ______ be ignored.

Should not

Optimal selling prices can be calculated using Microsoft Excel ______.

Solver

A one-time order that is not considered part of the company's normal ongoing business is a _______ order.

Special

A gain on the sales of a fixed asset will be ______ net income to arrive at the cash provided or (used) by operating activities prepared using the indirect method.

Subtract from

The market is instrumental in determining a product's price through the laws of ______ and ______.

Supply, Demand

Anticipated selling price - Desired profit = ______ ______.

Target Cost

Freemont Company's Account Receivable decrease by $4,000 and its Income Taxes Payable increased by $3,000 during the year. Which of the following is the correct treatment within the operating activities section of the statement of cash flows using the indirect method?

The change in Account Receivable is added to net income; the changes in Inventory is added to net income.

Which of the following statement is false?

The net present value method assumes that cash flows are not reinvested

The internal rate of return is:

The rate of return of an investment project over its useful life

A set of activities ranging from development to production to after-sales service is called:

The value chain

To increase the strength of a chain, efforts should be concentrated on strengthening:

The weakest link

Investing Activity

These activities generate cash inflows and outflows related to acquiring or disposing of concurrent assets, long-term investments, and loans to another entity

Financing Activity

These activities generate cash inflows and outflows related to creditors and transactions with the company's owners

Operating Activities

These activity generate cash inflows and outflows related to revenue and expense transactions that affect net income

Which of the following best describes the price elasticity of demand?

This is the degree to which a change in price affects the unit sales of product

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

Total Cost

Mingling irrelevant and relevant costs may cause confusion and distract attention from critical information

True

True or False: When deciding whether to take a train or drive fir a weekend trip to visit an out-of-town friend, the monthly fee a student pays to park at school is not relevant to the decision.

True

Which of the following is a limitation of the simple rate of return?

Use accounting income

Which of the following is not true about a post-audit?

Uses estimated data

Working Capital:

Often increases when a company takes on a new project

Assume the Accumulated Depreciation account had beginning and ending balances of $600 and $1,000, respectively. Also, assume that the company sold equipment with accumulated depreciation of $100 during the period. What was the amount of depreciation charges during the period?

$500

Financing activities include:

-Borrowing money -Repurchasing common stock

Which of the following statements are true?

-Compound interest means that interest is paid on interest -The more frequent interest is compounded, the faster the balance grows

Operating activities include:

-Corporate income taxes payment -Wage payment to employees -Interest on notes receivable or notes payable

Which of the following techniques describe how a bottleneck should be managed?

-Find ways to increase the capacity of the bottleneck -Focus business process improvement effects on the bottleneck -Ensure there is minimal lost time at the bottleneck due to breakdowns and set-up

Conducting a post-audit:

-Flags any manager's attempts to inflate benefits or downplay costs in a project proposal -Provides an opportunity to reinforce and possibly expand successful projects -Provides an opportunity to cut losses on floundering projects

The required rate of return is the _______ rate of return a project must yield to be acceptable.

Minimum

A dollar today is worth ______ than a dollar earned a year from now.

More

When using the internal rate of return method to rank competing investment projects, an investment that has an internal rate of return of 20% is ______ than an investment that has an internal rate of return of 17%.

More Desirable

When a conflict between capital budgeting methods exists, the most reliable method to use for making preference decisions is:

Net Present Value

Two capital budgeting approaches that use discounted cash flow are the ______ _______ value method and the _______ _______ of return method

Net Present, Internal Rate

When making a preference decision, comparing the net present value of one project to the net present value of another project can:

Only be done if the initial investment are equal

Allocated common costs are:

Only relevant to decision if they are avoidable

During the year sales added $430 million to a company's accounts receivable. A total of $360 million of accounts were collected. On the statements of cash flows:

Only the net increase of $70 million will be reported

The total cost approach and the differential approach method of decision analysis ______ provide the same correct answer.

Will always

Current assets minus current liabilities is called ______ ______.

Working capital

Cash Inflow

Working capital is released for use elsewhere within the company

Cash Outflow

Working capital is tied up for project needs

Synonyms for differential costs include _______ cost.

Avoidance Incremental

Isolating relevant costs is desirable because:

-Critical information may be overlooked with the total cost approach -All information needed for the total cost approach is rarely available - Irrelevant costs may be used incorrectly in the analysis

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

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

Avoidable or Unavoidable: Wages paid to the division's employees who will be downsized if the division is dropped.

Avoidable

Latitude and private information are two components of _______ influence that impact the determination of selling price. A) Customers' B) Competitors' C) Costs' D) Revenues"

A) Customers'

Irrelevant costs include: A) Sunk Costs B) Future costs that differ between alternatives C) All fixed costs D) Future costs that do not differ between alternatives

A) Sunk Costs D) Future costs that do not differ between alternatives

A project with a positive net present value would be ______ and a project with a negative net present value would be ______.

Acceptable, Unacceptable

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

Allocated common fixed costs

Joint costs incurred prior to the split-off point ______ relevant in decisions regarding what to do from the split-off point forward

Are not

Cost of Capital

Average rate of return that must be paid to long-term creditors and shareholders for use of their funds

A cost that can be eliminated by choosing one alternative over another is a(n) ______.

Avoidable

Avoidable or Unavoidable: Rent paid for the division's regional office

Avoidable

Prairie, Inc. produces a single product. It has an annual capacity of 10,000 units, but currently uses only 80% of it. Each units is sold for $50 and requires direct material worth $30 and direct labor worth $5. Manufacturing overhead cost is $10 per unit of which 70% is variable. What is Prairie's total incremental cost incurred to produce each unit? A) $30 B) $42 C) $35 D) $45

B) $42

Superware, Inc. produces multiple produces multiple products out of a common input. Geratin is one such product, which has a sales value of $15,000 at the spilt-off point. Joint costs allocated to Geratin are $12,000. Sales vale of Geratin increases to $25,000 after further processing, and this processing will cost $7,000. What is net profit or loss of Superware processes the product further? A) ($3,000) loss B) $3,000 profit C) $20,000 profit D) $18,000 profit

B) 3,000 profit

Target cost is determined by subtracting the ______ from the anticipated selling price. A) Manufacturing Overhead B) Desired Profit C) After-Sales Service Costs D) Marketing Costs

B) Desired Profit

When a manager increases the capacity of constraint or ______, is called relaxing the constraint.

Bottleneck

If a company prices all of its products above the price flow, try will always make a profit.

False

The sensitivity of unit sales to changes in price is called ______. A) Markup Percentage B) Profit- Maximizing Price C) Elasticity of Demand D) Latitude

C) Elasticity of Demand

All of the following are relevant to sell or process further decision except ______. A) Costs incurred beyond the split-off point B) Revenues at the split-off point C) Joint costs incurred before the split-off point D) Revenue beyond the spilt-off point

C) Joint costs incurred before the split-off point

The potential benefit given up when selecting one alternative over another is a(n) ______. A) Sunk B) Irrelevant C) Opportunity D Avoidance

C) Opportunity

Which of the following is NOT correct? A) EVC = Reference Value + Differential Value B) Reference Value <= Value-Based Price <= EVC C) Reference Value >= Value-Based >= EVC D) Reference Value = The price of the best alternatives

C) Reference Value >= Value-Based >= EVC

Customers and competitors play important role that in determining a company price

Ceiling

The higher price customers are willing to pay is called the price ______.

Ceiling

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

Constraint

Applying a predetermined markup percentage to a cost base to determine the selling price is called:

Cost-Plus Pricing

Working Capital

Current Asset minus(-) Current Liability

The potential benefit that is given up when one alternative is selected over another is called _______. A) Relevant Cost B) Avoidable Cost C) Differential Cost D) Opportunity Cost

D) Opportunity Cost

When considering decision alternatives, only relevant costs are included when using the ______ ______ approach.

Differential Cost

If price change significantly impact product sales, demand for the product is said to be ______. If the change in price does not gnarly impact sales demand is ______.

Elastic, Inelastic

Reasons to Isolate Relevant Cost

Enough information rarely available to prepare income statements

A product's markup is the difference between its selling _______ and its _______.

Price Cost

The degree to which a change in price affects unit sales of a product or service is the ______ ______ of ______

Price elasticity of demand

A product's markup is the difference between its selling ______ and its ______.

Price, Cost

Effectively managing an organization's continents is a key to increased

Profits

A product's economic value to the customer is based on the _______ value and the ______ value.

Reference, differentiation

Differential revenue is an example of a(n) _______ benefit.

Relavent