FINAL EXAM
The internal rate of return is the discount rate that results in a net present value of _______________for the investment.
zero
Deciding what to do with a joint product at the split-off point is a(n) ____________or_____________ ___________ decision.
sell or process further
A one-time sale that is not considered part of the company's normal ongoing business is referred to as a(n) _______________ _____________decision.
special order
Costs that have already been incurred and cannot be avoided regardless of what a manager decides to do are ___________ costs.
sunk
Costs that have no impact on future cash flows and are irrelevant to decisions are ___________ costs.
sunk
An investment requires committing funds today with ______. -the expectation of earning a return on those funds in the future -no expectation of earning a return on those funds in the future
the expectation of earning a return on those funds in the future
When using the internal rate of return method to rank competing investment projects _________ -the higher the internal rate of return, the more desirable the project -the higher the internal rate of return, the less desirable the project -any internal rate of return greater than the required return is preferable -any internal rate of return greater than zero is preferable
the higher the internal rate of return, the more desirable the project
The manufacturing cycle efficiency is computed by relating the value-added time to the ___________ time.
throughput
The period from which a product begins production as raw materials and ends as a finished product is known as __________ time or manufacturing cycle time.
throughput
The concept that a dollar today is worth more than a dollar a year from now is called the _____________ _______________of money.
time value
When considering a company's expanded set of corporate social responsibilities, "people, planet and profit: is also know as the ______________ _____________ _____________- .
triple bottom line
Improvements in learning and growth and internal business process measures should ultimately have a positive influence on customer measures. T or F
true
Reducing wait time often enables companies to increase customer satisfaction and profits. T or F
true
The elapsed time from when a customer order is received and when production begins is called ____________ time.
wait
An integrated set of performance measures that are derived from the company's strategy is ___________
a balanced scoreboard
Opportunity costs should ______ be included in a make or buy analysis.
always
A cost that can be eliminated in whole or in part by choosing one alternative over another is a(n) ___________ cost.
avoidable
An integrated set of performance measures that are derived from the company's strategy is a(n) _____________ ___________
balanced scoreboard
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 be increased by not be changed by
be reduced by
When the cash flows associated with an investment project change from year to year, the payback period must be calculated _______ using the equation investment required ÷ annual net cash inflows by tracking the unrecovered investment year by year using statistical computer software using the average annual net cash inflow
by tracking the unrecovered investment year by year
A limited resource of some type that restricts the company's ability to satisfy demand is a(n) __________
constraint
When a shortage or limited resource of some type restricts a company's ability to satisfy demand, the company has a(n)___________
constraint or bottleneck
Stephan Photography has an 18% required rate of return and is analyzing competing investments in new camera equipment. Option A has a project profitability index of 1.16, and Option B has a project profitability index of 1.13. The best choice for Stephan Photography is _____________ either option option A option B neither option
option A
Reggie's Refrigerators is considering the purchase of some new equipment. The company has limited its purchase options to two alternatives. Option A has an internal rate of return of 10%, and option B has an internal rate of return of 13%. If the required rate of return on the project is 9.5%, _________ either option is equally acceptable neither option is acceptable option A is the preferred choice option B is the preferred choice
option B is the preferred choice
Instead of focusing on a project's profitability, the ______________period focuses on the time it takes for an investment to pay for itself.
payback
Investment required ÷ Annual net cash inflow is the formula for the ____________ period.
payback
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 __________period.
payback
Investment required ÷ Annual net cash inflow is the formula for the _________ payback period simple rate of return net present value discount rate
payback period
The "triple-bottom line" refers to _____________ ___________, and profit.
people, planet
Implementing a quality control project to prevent defects from occurring results in _________ costs.
prevention
The elapsed time between when a customer order is received until the finished goods are shipped is called time____________ _____________
Delivery cycle
True or false: In a sell or process decision, either all joint products must be processed or all must be sold.
False
When is it profitable to continue processing a joint product after the split-off point? It is profitable when the incremental revenue exceeds the incremental processing cost. It is never profitable. It is always profitable. It is profitable when the incremental processing cost exceeds the incremental revenue.
It is profitable when the incremental revenue exceeds the incremental processing cost.
Which of the following is NOT a dimension of learning and growth measures? Compensation and advancement Lean resourcement management Skills development Wellness/Safety
Lean resourcement management
Select the capital budgeting approaches that use discounted cash flows. Simple rate of return method Net present value method Payback method Internal rate of return method
Net present value method Internal rate of return method
When making a decision to either buy a movie ticket or rent a DVD, the cost of the movie ticket is an example of a(n) ___________ cost. avoidable incremental irrelevant sunk
avoidable incremental
If some products must be cut back because of a constraint, produce the products with the highest ___________. net operating income per unit contribution margin per unit of constrained resource contribution margin per unit of product
contribution margin per unit of constrained resource
When a constraint exists, companies need to focus on maximizing ______. contribution margin per unit of constraint net income from sales contribution margin per unit net sales
contribution margin per unit of constraint
he sum of prevention, appraisal, internal failure, and external failure costs is called the ____________of______________ .
cost of quality
Typical capital budgeting cash inflows include ___________ installation costs cost reductions salvage value working capital released
cost reductions salvage value working capital released
Measures related to satisfaction, lifetime value and loyalty are included in the _______________section of the balanced scorecard.
customer
Choose the groups of performance measures typically used in the balanced scorecard approach. Quality scores Customer Learning and growth Financial Safety records
customer, learning and growth, and financial
The term discounting cash flows refers to the process of calculating the ______ value of those cash flows. (Enter only one word per blank.) future past present
present
Costs and benefits that should be ignored when making decisions are called ____________ costs and benefits
irrelevant
Future costs and benefits that do not differ between alternatives are ________ costs to the decision-making process.
irrelevant
Joint costs are ___________. -common costs that must be allocated to make decisions about the individual products -increased or decreased after the split-off point -irrelevant in decisions regarding what to do with a product after split-off -economically attributable to all end products
irrelevant in decisions regarding what to do with a product after split-off
Two capital budgeting approaches that use discounted cash flows are the _____________ _____________value method and the_____________ _________________of return method.
net present, internal rate
Joint costs incurred prior to the split-off point are ______________ relevant in decisions regarding what to do from the split-off point forward. never always sometimes
never
A MCE of less than 1 indicates ____________. the majority of time is spent on activities that add value to the product non-value added time is present operations are efficient
non-value added time is present
When making a decision ___________ costs and benefits should to be included in the analysis.
only relevant
Pam's Pet Palace is considering an investment in dog grooming equipment that would increase cash receipts by $12,000 annually. The initial cost of the equipment is $50,000. The equipment has an estimated 10 year life and will have a $5,000 salvage value. Using a discount rate of 8%, and the tables in the appendix, what is the net present value of this equipment?
$32,835
A new machine requires an investment of $630,000 and will generate $100,000 in cash inflows for 7 years, at which time the salvage value of the machine will be $130,000. Using a discount rate of 10%, the net present value of the machine is rounded to the nearest dollar is $_________
-76510
Which of the following should not be included in the analysis when making a decision? Opportunity costs Avoidable costs Sunk costs Non-differential future costs
-Sunk costs -Non-differential future costs
Irrelevant costs include _________. all fixed costs future costs that do not differ between alternatives sunk costs future costs that differ between alternatives
-future costs that do not differ between alternatives -sunk costs
A manufacturing cycle efficiency of 40% means that Blank______. -value-added activities are being performed 60% of the time -the typical order is being worked on 40% of the time -value-added activities are being performed 40% of the time -40% of the company's time is spent on non-value added activities
-the typical order is being worked on 40% of the time -value-added activities are being performed 40% of the time
When considering accepting a special order, ______________. -there must be idle capacity -opportunity costs should never be considered -normal sales must not be affected -incremental revenue should equal increment cost
-there must be idle capacity -normal sales must not be affected
The net present value of a project is _______________. -used in determining whether or not a project is an acceptable capital investment -the difference between the present value of cash inflows and present value of cash outflows -the present value of the project's projected annual tax savings -the cost of an investment less the present value of the project's salvage value
-used in determining whether or not a project is an acceptable capital investment -the difference between the present value of cash inflows and present value of cash outflows
State Bank is implementing a new marketing campaign that requires an initial investment of $35,000. If the project profitability index is 1.2, the present value of the campaign's future cash flows is $_________
1.2 = present value/35,000 $42,000
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 the company only has 1,500 direct labor hours available, the company should produce _____________units of Product DGH _____________and units of Product RBG.
1000, 4000
Gavin, Inc. recorded the following information for one of its products. All amounts are in days: Wait time 5.0; Inspection time 0.7; Process time 2.5; Move time 0.4; Queue time 3.0. Gavin's delivery cycle time is ___________ days.
11.6 - add them all up
Sandy's Soda Co. is planning to purchase new equipment that costs $56,000 and will save on operating costs for the next 5 years as follows: $21,500 in year 1; $23,100 in year 2; $19,000 in year 3; $13,900 in year 4; and $15,200 in year 5. The payback period for the cooling equipment is Blank______ years.
2.6 After two years $44,600 ($21,500 + $23,100) will have been paid back leaving $11,400 ($56,000 - $44,600). $11,400 ÷ $19,000 = .6, so the total payback period is 2.6 years.
Quick to Ship Company has a process time of 2 days and a throughput time of 8 days. The manufacturing cycle efficiency is ________.
2/8 = .25
Farm Central is considering the purchase of a larger combine that costs $210,000 and has a useful life of 10 years. The combine will reduce labor costs by $25,000 per year. The payback period of the combine is ______ years.
210,000/25,000= 8.4
Spicer Dentistry is considering the purchase of a new x-ray machine that costs $2,400 and has a useful life of 10 years. It is expected to reduce operating costs by $400 per year. The payback period for the x-ray machine is _______________years.
2400/400 = 6
Calderon Kitchen Supplies is planning to invest $210,000 in a new product. If the present value of the cash inflows is $266,700, the project profitability index is _____________
266,700/210,000
Joe's Moving Co. is considering purchasing a new truck that costs $24,000 and will last 6 years. It should increase net operating income by $4,000 per year and will be depreciated using the straight-line method. The payback period for the new truck is ____________________ years.
3
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 time, the contribution margin per unit of constraint for Product XYZ is $ ____________per minute.
3
Capri Industries is considering an investment that has an initial cost of $26,500 and the following expected cash inflows: Year Cash Inflow 1 $6,000 2 $8,000 3 $10,000 4 $5,000 5 $3,000 The expected payback period is __________years.
3.5
Why must future cash flows relating to a capital investment be discounted when calculating the net present value of the investment? -Future cash flows need not be discounted when calculating net present value. -Because of the time value of money, future cash flows must be discounted to be comparable to other cash flows. -It is easier to discount future cash flows when calculating net present value, even though it makes cash flows less comparable.
Because of the time value of money, future cash flows must be discounted to be comparable to other cash flows.
Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. The relevant manufacturing costs for the part is $15 per unit. If the company decides to purchase the part, the space now being used can be used to produce another product that will generate a segment margin of $80,000 per year. Should Andrews continue to make or should they buy the part?
Buy — $20,000 advantage.
Which of the following is NOT a typical capital budgeting cash outflow? Initial equipment investment Installation costs Working capital invested Cost reductions
Cost reductions
Choose the four groups of performance measures typically used in the balanced scorecard approach. -Financial, internal business processes, learning and growth, and quality assurance -Financial, customer, internal business processes, and quality assurance -Financial, customer, internal business processes, and learning and growth -Financial, customer, learning and growth, and quality assurance
Financial, customer, internal business processes, and learning and growth
Which of the following performance measures are part of the balanced scorecard? Financial Learning and growth Customer Vendor
Financial, learning and growth, and customer
The net present value of a project is the ________________ -actual return on investment -difference between the present value of -cash inflows and the present value of cash outflows -expected net operating income -sum of the present value of cash inflows and the present value of cash outflows
difference between the present value of cash inflows and the present value of cash outflows
Which of the following is not a category of quality costs? Prevention costs Direct costs Internal failure costs Appraisal costs
direct costs
Calculating the present value of money is referred to as ____________cash flows.
discounting
When a company recalls a defective product, a(n) ____________ ______________ cost is incurred.
external failure
When making a volume-trade off decision, managers should ignore_________
fixed costs
The rule used when comparing competing investments is the _____________ the project profitability index, the more desirable the project. lower higher
higher
To maximize total contribution margin when a constrained resource exists, produce the products with the __________. -lowest unit contribution margin -lowest contribution margin per unit of the constrained resource -highest contribution margin per unit of the constrained resource -highest unit contribution margin
highest contribution margin per unit of the constrained resource
Stephens, Inc. is considering dropping a product line. During the prior year, the line had sales of $170,000, variable costs of $86,000 and total fixed expenses of $110,000. Of the fixed expenses, $95,000 are avoidable. If Stephens drops the product line, net operating income will__________
increase by $11,000
A joint product should be processed after split-off if the ________. -revenue after additional processing exceeds the revenue at the split-off point -total revenue exceeds the total incremental and allocated common costs -incremental revenue after split-off exceeds the incremental processing cost after split-off
incremental revenue after split-off exceeds the incremental processing cost after split-off
JPL, Inc. recorded the following information for one of its products. All amounts are in days: Wait time 4.0; Inspection time 0.6; Process time 2.3; Move time 0.7; Queue time 3.1. JPL's throughput (manufacturing cycle) time is _________ days.
inspection time + process time + move time + Queue time = 6.7
Fill in the blank question. Costs incurred to identify defective products before they are shipped to customers are called ____________or ____________costs.
inspection, appraisal costs
Components of throughput time include _________ time. inspection process wait queue
inspection, process, and queue
Typical capital budgeting cash outflows include_________ installation costs cost reductions initial equipment investments working capital invested salvage value of old equipment
installation costs initial equipment investments working capital invested
Costs that result from identifying defects before products are shipped to customers and include the cost of scrap and rework are _________ costs.
internal failure
Spending the money on opening a new location, purchasing new equipment, implementing new programs, expanding to new product lines, and conducting research are all examples of _____. revenues inflows investments returns
investments
The internal rate of return _____________ -is the discount rate that makes NPV equal zero for a project -is also known as the simple rate of return method -is the rate of return required for all investments made by a company -does not consider the time value of money
is the discount rate that makes NPV equal zero for a project
The costs incurred up to the split-off point in a process in which two or more products are produced from a common input are known as ___________ costs.
joint
Measures related to recruiting and retention are included in the _______________ and ______________section of the balanced scorecard.
learning and growth
A decision to carry out one of the activities in the value chain internally rather than to purchase externally from a supplier is a ______ decision.
make or buy
Determining whether to carry out an activity in the value chain internally or use a supplier is a ______ decision.
make or buy
The concept of the time value of money is based on the notion that a dollar today is worth (more/less) __________than a dollar a year from now.
more
One dollar today is worth __________ a dollar a year from now.
more than
Goodstone Tire Corporation sells tires for $100 each. Per unit costs associated with producing and selling the tires are: Direct materials and labor $45; Factory overhead $20; Selling and administrative $15. The variable portion of the factory overhead is $8 per unit. A foreign company wants to purchase 10,000 tires for $70 each. The order would not require any selling or administrative costs. The purchaser will pay the shipping costs, but Goodstone will have to pay a $100,000 inspection fee in order to be able to make the foreign sale. Accepting the special order will not affect current sales or production. What effect would accepting the special order have on Goodstone's net operating income?
$70,000 increase
Studio Films is considering the purchase of some new film equipment that costs $150,000. It has a 5 year useful life with no salvage value. The new equipment is expected to increase revenues by $115,000 annually. Annual incremental cash operating expenses are expected to be $40,000. The simple rate of return of the equipment is____________
30
Poppy's Gumball Co. is planning to invest in a new marketing campaign that requires an initial investment of $85,000 and is expected to provide incremental annual income of $27,200. The simple rate of return on the project is _____________
32%
Sander Technologies is considering a research project. If successful, the project is expected to lead to sales totaling $60,000 annually. The initial cost of the research is expected to be $331,500. The factor of the internal rate of return is _______
331,500/60,000 = 5.525
Bo's Baseball Equipment is planning to invest in some new equipment that has a purchase price of $30,000. The new equipment will save Bo $7,500 in operating expenses annually. The factor of the internal rate of return for this project is ___________
4 30,000/7500
Pizza Pizazz is considering purchasing a new pizza oven that costs $180,000 and will last 5 years. It should increase net operating income by $14,000 year and will be depreciated using the straight-line method. The old pizza oven will be traded in and has a salvage value of $20,000. The payback period for the new oven is ________years.
Reason: $180,000 ÷ 5 = $36,000 depreciation + $14,000 net operating income = $50,000 cash flow. ($180,000 - $20,000) ÷ $50,000 = -3.2 years
To reduce the cost of quality organizations should increase _________. -prevention and appraisal costs to reduce internal and external failure costs -prevention costs and reduce appraisal costs -internal failure costs to reduce or eliminate external failure costs
prevention and appraisal costs to reduce internal and external failure costs
Preventing, detecting, and dealing with defects causes the incurrence of ________ costs.
quality costs
A manager with a current ROI of 20% has been offered a project with a positive net present value and a simple rate of return of 17%. If the manager is evaluated based on ROI, the manager will probably _________the project. reject accept
reject
Costs and benefits that always differ between alternatives are __________ costs and benefits.
relevant
It is profitable to continue processing 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, income, revenues, or benefit
When computing the simple rate of return, the initial investment should be reduced by any ______________ value realized from the sale of the old equipment.
salvage
A special order should be accepted __________. -almost always, because it means more business and will keep the employees productive -when the incremental costs from the special order exceeds the incremental revenue of the order -when the incremental revenue from the special order exceeds the incremental costs of the order
when the incremental revenue from the special order exceeds the incremental costs of the order
Typical capital budgeting cash inflows DO NOT include ______ working capital invested increased revenues salvage value cost reductions
working capital invested
