Turner practice for ex 3

If Lehigh invests $200 at the end of each year for three years at 8%, how much will he have at the end of the three years?

$200 × 3.246 (factor for 8%, 3 periods) = $649.20 this uses table to have 3.246

If Lehigh invests $325 at the end of each year for six years at 10%, how much will he have at the end of the sixth year?

$325 × 7.716 (factor for 10%, 6 periods) = $2,507.70 uses table to get 7.716

Your grandmother wishes to give you a trip to Belize when you graduate from college in four years. She estimates the trip will cost $4,000. How much must she invest now at 6.0% to accumulate enough for you to take this trip?

$4,000 × 0.792 (factor for 6%, 4 periods) = $3,168.00 uses table to get 0.792

During the year, the Blue Horizons boat company incurred manufacturing costs of $400,000 in building three large sailboats. At year-end, each boat is about 70 percent complete. How much of these manufacturing costs should be recognized as expenses in Blue Horizons' income statement for the current year? manufacturing costs recognized as expenses is

0

Burns Industries currently manufactures and sells 20,000 power saws per month, although it has the capacity to produce 35,000 units per month. At the 20,000-unit-per-month level of production, the per-unit cost is $65, consisting of $40 in variable costs and $25 in fixed costs. Burns sells its saws to retail stores for $80 each. Allen Distributors has offered to purchase 5,000 saws per month at a reduced price. Burns can manufacture these additional units with no change in its present level of fixed manufacturing costs. Using an incremental analysis approach, Burns should consider accepting this special order only if the price per unit offered by Allen is at least:

A special price offer of at least $40 will cover the variable costs of production. so 40

Lazar Corporation is evaluating a proposal to invest in a machine costing $89,000. The machine has an estimated useful life of ten years, and an estimated salvage value of $14,000. The machine will increase the company's net income by approximately $9,600 per year. All revenue and expenses other than depreciation will be received and paid in cash. What is the expected rate of return on average investment of the machine?

Average investment = ($89,000 + $14,000) ÷ 2 = $51,500 Expected rate of return on average investment = $9,600 ÷ $51,500 = 18.6% (rounded)) Answer is 18.6%

John Boyd Corporation manufactures and sells 1,000 tractors each month. The primary component in each tractor is the motor. John Boyd has the monthly capacity to produce 1,300 motors. The variable costs associated with manufacturing each motor are shown below: Direct materials$ 29 Direct labor$ 21 Variable manufacturing overhead$ 34 Fixed manufacturing overhead per month (for up to 1,300 units of production) averages $22,000. Joan Reid, Incorporated has offered to purchase 150 motors from John Boyd per month to be used in its own outboard motors. If Joan Reid's order is rejected, what will be John Boyd's average unit cost of manufacturing each motor?

Average unit cost of manufacturing each motor = $29 + $21 + $34 + ($22,000 ÷ 1,000 tractors) = $106 so 106 per unit

The most widely used budgeting philosophy is the:

Behavioral approach.

If monthly fixed costs are $32,000 and the contribution margin ratio is 25%, the monthly sales volume (dollars) required to break even is:

Break-even sales volume (dollars) = $32,000 ÷ 0.25 = $128,000

If unit sales prices are $20 and variable costs are $12 per unit, how many units would have to be sold to break-even if fixed costs equal $15,000?

Break-even sales volume (in units) = $15,000 ÷ ($20 − $12) = 1,875 units

If the unit sales price is $16, variable costs are $4 per unit and fixed costs are $14,000, how many units must be sold to earn an income of $160,000?

Break-even sales volume (in units) = ($14,000 + $160,000) ÷ $12 = 14,500 units

Ross Corporation makes all sales on account. The June 30th balance sheet balance in its accounts receivable is $400,000, of which $240,000 pertain to sales that were made during June. Budgeted sales for July are $1,250,000. Ross collects 70% of sales in the month of sale; 20% in the following month; and the final 10% in the second month after the sale. What is the budgeted balance of Ross's accounts receivable as of July 31?

Budgeted balance of accounts receivable as of July 31 = (0.30 × $1,250,000) + ((1 ÷ 3) × $240,000) = $455,000 answer is 455,000

On October 1 of the current year, Molloy Corporation prepared a cash budget for October, November, and December. All of Molloy's sales are made on account. The following information was used in preparing estimated cash collections: August sales (actual)$ 50,000 September sales (actual)$ 60,000 October sales (estimated)$ 30,000 November sales (estimated)$ 80,000 December sales (estimated)$ 70,000 Approximately 65% of all sales are collected in the month of the sale, 20% is collected in the following month, and 15% is collected in the month thereafter. Budgeted collections of receivables in November total:

Budgeted collections of receivables in November = (0.65 × $80,000) + (0.20 × $30,000) + (0.15 × $60,000) = $67,000

On October 1 of the current year, Molloy Corporation prepared a cash budget for October, November, and December. All of Molloy's sales are made on account. The following information was used in preparing estimated cash collections: August sales (actual)$ 35,000 September sales (actual)$ 45,000 October sales (estimated)$ 24,000 November sales (estimated)$ 65,000 December sales (estimated)$ 55,000 Approximately 60% of all sales are collected in the month of the sale, 30% is collected in the following month, and 10% is collected in the month thereafter. Budgeted collections of receivables in October total:

Budgeted collections of receivables in October = (0.60 × $24,000) + (0.30 × $45,000) + (0.10 × $35,000) = $31,400

Which of the following measures the amount of sales dollars generated from each dollar of capital invested in assets?

Capital turnover

The following information regarding Mahen, Incorporated, is available: Sales $ 1,500,000 Cost of goods sold 900,000 Operating expenses 450,000 Operating income 150,000 Average invested capital 2,500,000 What is the company's capital turnover?

Capital turnover = $1,500,000 ÷ $2,500,000 = 60%

The following information regarding Mahen, Incorporated, is available: Sales $ 1,919,900 Cost of goods sold 1,363,500 Operating expenses 580,000 Operating income 280,000 Average invested capital 2,630,000 What is the company's capital turnover?

Capital turnover = $1,919,900 ÷ $2,630,000 = 73%

Summit Products, Incorporated is interested in producing and selling an improved widget. Market research indicates that customers would be willing to pay $118 for such a widget and that 50,320 units could be sold each year at this price. The current cost to produce the widget is estimated to be $93. At a price of $108, Summit's market research indicates that it can sell 57,820 units per year. Assuming Summit Products can reach its new target cost that requires a 25% return on sales, how will Summit's profit at the $108 price compare to what it would have earned in the absence of the competitor's product?

Change in profit = (57,820 × [$108.00 − $81.00]) − (50,320 × [$118.00 − $88.50]) = $76,700 higher

The just-in-time manufacturing system:

Contrasts with the supply push systems.

A company with revenue of $124,000, variable costs of $51,000, and fixed costs of $40,400 has a contribution margin of

Contribution margin = $124,000 − $51,000 = $73,000

A company with monthly fixed costs of $180,000 expects to earn monthly operating income of $23,000 by selling 7,000 units per month. What is the company's expected unit contribution margin?

Contribution margin = Fixed costs of $180,000 + Operating income of $23,000 = $203,000 Contribution margin of $203,000 = 7,000 units × Unit contribution margin Unit contribution margin = $203,000 ÷ 7,000 units = $29

Accents Associates sells only one product, with a current selling price of $30 per unit. Variable costs are 30% of this selling price, and fixed costs are $28,000 per month. Management has decided to reduce the selling price to $25 per unit in an effort to increase sales. Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price. At the current selling price of $30 per unit, the contribution margin ratio is:

Contribution margin ratio = ($30 − ($30 × 0.30)) ÷ $30 = 70%

Cars Unlimited, a manufacturer of hybrid cars, makes 2,900 units each year of a special valve used in assembling one of its products. The unit cost of producing this valve includes variable costs of $61 and fixed costs of $65. The valves could be purchased from an outside supplier at $68 each. If the valve were purchased from the outside supplier, 40% of the total fixed costs incurred in producing this valve could be eliminated. Buying the valves from the outside supplier instead of making them would cause the company's operating income to:

Costs to Make = $61 + $65 = $126 Costs to Buy = $68 + ($65 × 0.6) = $107 Increase (decrease) in operating income = (Costs to Make of $126 − Costs to Buy of $107) × 2,900 units = $55,100 answer is increase by 55,100

When volume increases within the relevant range, the fixed cost per unit is expected to:

Decrease.

Which of the following is not a period cost?

Depreciation on factory equipment

During the current year, the cost of direct materials purchased by a manufacturing company totaled $500,000, and the company's direct materials inventory increased by $100,000. What was the cost of direct materials used during the year? Cost of direct materials used is

Direct materials used = Direct materials purchased ($500,000) less the increase in the ending balance of direct materials ($100,000) = $400,000. so 500000- 100000 = 400,000

Alton Company produces metal belts. During the current month, the company incurred the following product costs: Direct materials used $92,000 Direct labor $56,000 Electricity used in the factory $20,500 Factory foreperson salary $4,300 Maintenance costs relating to factory machinery $1,950 The company's direct product costs totaled:

Direct product costs = $92,000 + $56,000 = $148,000

A system that considers the earnings per sales dollar and the investment used to generate those sales dollars is called the:

DuPont system.

The Terme Corporation is contemplating the purchase of new equipment, which may potentially increase revenues by 35%. Currently, sales are $680,000 per year, and cost of sales are 65% of sales. The equipment is expected to last for 4 years with no residual value. The cash outflow expected at the beginning of the year is $283,200. Ignoring income taxes, what is the estimated annual net operating income increase/decrease?

Estimated increase (decrease) in annual net operating income = $83,300 increase gross profit − $70,800 annual depreciation = $12,500 answer is 12,500 increase

Four categories of costs associated with product quality are:

External failure, internal failure, prevention, and appraisal.

When budgeted amounts are set at reasonable and achievable levels:

Failure to stay within the budget is viewed as an unacceptable level of performance

The cost of finished goods manufactured will be greater than the cost of goods sold whenever the inventory of:

Finished goods increases over the period

John Boyd Corporation manufactures and sells 1,000 tractors each month. The primary component in each tractor is the motor. John Boyd has the monthly capacity to produce 1,300 motors. The variable costs associated with manufacturing each motor are shown below: Direct materials$ 28 Direct labor$ 20 Variable manufacturing overhead$ 33 Fixed manufacturing overhead per month (for up to 1,300 units of production) averages $31,000. Joan Reid, Incorporated has offered to purchase 240 motors from John Boyd per month to be used in its own outboard motors. Assuming John Boyd wants to earn a pretax profit of $12,960 on this special order, what price must it charge Joan Reid?

Incremental cost of producing each additional motor = $28 + $20 + $33 = $81 Selling price needed to earn pretax profit of $12,960 = $81 + ($12,960 ÷ 240 motors) = $135 answer is 135 per unit

John Boyd Corporation manufactures and sells 1,000 tractors each month. The primary component in each tractor is the motor. John Boyd has the monthly capacity to produce 1,300 motors. The variable costs associated with manufacturing each motor are shown below: Direct materials$ 31 Direct labor$ 23 Variable manufacturing overhead$ 36 Fixed manufacturing overhead per month (for up to 1,300 units of production) averages $34,000. Joan Reid, Incorporated has offered to purchase 270 motors from John Boyd per month to be used in its own outboard motors. What is the incremental cost of producing each additional motor?

Incremental cost of producing each additional motor = $31 + $23 + $36 = $90 so, 90 is your answer.

Alton Company produces metal belts. During the current month, the company incurred the following product costs: Direct materials used $97,000 Direct labor $58,500 Electricity used in the factory $23,000 Factory foreperson salary $5,050 Maintenance costs relating to factory machinery $2,200 Alton Company's indirect product costs totaled:

Indirect product costs = $23,000 + $5,050 + $2,200 = $30,250

The present value of a cash amount:

Is always less than the future value.

Compound interest:

Is interest on the principal and previously earned interest.

Mitchell Corporation manufactures a single product. The selling price is $85 per unit, and variable costs amount to $68 per unit. The fixed costs are $16,500 per month. What will be the monthly margin of safety (in dollars) if 1,800 units are sold each month?

Margin of safety = (1,800 × $85) − $82,500 = $70,500

When a manufacturing company purchases materials or component parts to be used in manufacturing finished goods, these costs are initially debited to which of the following accounts?

Materials Inventory

The placing of direct materials into the production process is recorded by an entry crediting:

Materials Inventory.

Burns Industries currently manufactures and sells 20,000 power saws per month, although it has the capacity to produce 35,000 units per month. At the 20,000-unit-per-month level of production, the per-unit cost is $65, consisting of $40 in variable costs and $25 in fixed costs. Burns sells its saws to retail stores for $80 each. Allen Distributors has offered to purchase 5,000 saws per month at a reduced price. Burns can manufacture these additional units with no change in its present level of fixed manufacturing costs. Assume that Allen Distributors offers to purchase the additional 5,000 saws at a price of $47 per unit. If Burns accepts this price, Burns' monthly gross profit on sales of power saws will:

Monthly gross profit on sales of power saws = (5,000 saws × $47) − (5,000 saws × $40) = $35,000 increase by 35,000

The return on investment is calculated by:

Multiplying the capital turnover by the return on sales.

Helicopter Gear is planning to expand its product line, which requires investment of $475,200 in special-purpose machinery. The machinery has a useful life of six years and no salvage value. The estimated annual results of offering the new products are as follows: Revenue$ 528,000 Expenses (including straight-line depreciation) (501,600) Increase in net income$ 26,400 All revenue from the new products and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes. Using a discount rate of 12%, what is the net present value of this proposed investment?

Net present value = ($26,400 + $79,200) × 4.111 = $434,122 − $475,200 = ($41,078) (rounded) Answer is 41,078

Helicopter Gear is planning to expand its product line, which requires investment of $477,000 in special-purpose machinery. The machinery has a useful life of six years and no salvage value. The estimated annual results of offering the new products are as follows: Revenue$ 529,500 Expenses (including straight-line depreciation)(502,800) Increase in net income$ 26,700 All revenue from the new products and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes. Using a discount rate of 11%, what is the net present value of this proposed investment?

Net present value = ($26,700 + $79,500) × 4.231 = $449,332 − $477,000 = ($27,668) (rounded)

Mentha Company currently has the following statistics: Days required to sell inventory: 80 Days required to collect accounts receivable: 68 What is the company's operating cycle?

Operating cycle = Number of days required to sell inventory + Number of days required to collect accounts receivable Operating cycle = 80 days + 68 days = 148 days

Oceanic Corporation has borrowed $48,000 that must be repaid in two years. This $48,000 will be invested in a seven-year project with an estimated annual net cash flow of $16,000. The payback period for this investment is:

Payback period = Amount to be invested ÷ Estimated annual net cash flow Payback period = $48,000 ÷ $16,000 = 3 years Answer is 3 years

Oceanic Corporation has borrowed $51,600 that must be repaid in two years. This $51,600 will be invested in a seven-year project with an estimated annual net cash flow of $17,200. The payback period for this investment is:

Payback period = Amount to be invested ÷ Estimated annual net cash flow Payback period = $51,600 ÷ $17,200 = 3 years

To determine the amount to be deposited in a bank today to grow to $5,000 three years from now at 7%, which table should be used?

Present value of $1.

Duffy, Incorporated is considering the purchase of a new machine costing $720,000. The machine's useful life is expected to be 9 years with no salvage value. The straight-line depreciation method will be used. The net increase in annual after-tax cash flow is expected to be $141,000. Rooney estimates its cost of capital to be 10%. (The present value of a $1 annuity for 9 years at 10% is 5.759, and the present value of $1 to be received in 9 years is 0.424.) The net present value of the investment in the machine under consideration is approximately:

Present value of net increase in annual after-tax cash flow = $141,000 × 5.759 = $812,019 Net present value = $812,019 − $720,000 = $92,019 Answer is 92,019

Duffy, Incorporated is considering the purchase of a new machine costing $855,000. The machine's useful life is expected to be 9 years with no salvage value. The straight-line depreciation method will be used. The net increase in annual after-tax cash flow is expected to be $156,000. Rooney estimates its cost of capital to be 10%. (The present value of a $1 annuity for 9 years at 10% is 5.759, and the present value of $1 to be received in 9 years is 0.424.) The net present value of the investment in the machine under consideration is approximately:

Present value of net increase in annual after-tax cash flow = $156,000 × 5.759 = $898,404 Net present value = $898,404 − $855,000 = $43,404 Answer is 43,404

Following are some of the types of costs that a restaurant incurs in each of the four cost-of-quality categories. Match the cost with respective categories. Cost Category Training chefs and wait staff. Quality control checking of purchased produce and meats. Ruined meal because of spoiled produce. Meal returned by customer. what are the categories?

Prevention Appraisal . Internal External failure

Capital investment proposals are generally "not" evaluated by using the

Price-earnings ratio method.

Morgan Company has a ROI of 5% and a capital turnover of 8%. What is its return on sales?

ROI = 0.05 = 0.08 × Return on sales Return on sales = 0.05 ÷ 0.08 = 0.625 answer would be 62.5%

The Portsmouth Company provided the following information regarding its operations: Total assets End of Year 1 $ 40,450,000 End of Year 2 $ 45,450,000 Year 1 Net operating income$ 909,000 Net sales 2,034,000 Year 2 Net operating income $ 969,000 Net sales 2,609,000 What is the company's ROI for Year 2?

ROI for Year 2= $969,000 ÷ [($40,450,000 + $45,450,000) ÷ 2] = 2.26% (rounded)

Washita Incorporated reported the following information: Operating earnings $ 475,000 Minimum acceptable return 11% Invested capital $ 1,800,000 What is the company's residual income?

Residual income = $475,000 − ($1,800,000 × 0.11) = $277,000

Shaw Stores has sales of $1,624,000, cost of sales of $663,000, and operating expenses of $302,000. What is the company's return on sales?

Return on sales = ($1,624,000 − $663,000 − $302,000) ÷ $1,624,000 = 40.58% (rounded)

The suppliers and production component of the value chain would include all of the following costs except:

Salaries for sales personnel.

Which of the following costs would not be considered part of the manufacturing overhead of a chemical plant?

Salaries of employees who operate distilling equipment used in the production process

Summit Products, Incorporated is interested in producing and selling an improved widget. Market research indicates that customers would be willing to pay $42 for such a widget and that 50,280 units could be sold each year at this price. The current cost to produce the widget is estimated to be $17. If Summit Products requires a 25% return on sales to undertake production, what is the target cost for the new widget?

Target cost = $42 − ($42 × 0.25) = $31.50

Which of the following is not a cost of quality?

Target costs

A company's operating cycle is the time between purchases of direct materials and conversion of these materials back into cash.

True

Annuities provide a series of cash flows to investors at regular intervals for a specified period of time.

True

Cycle time is the length of time required for a product to pass completely through a manufacturing process.

True

Discounting a future value amount will determine its present value amount.

True

In preparing a master budget, budgeted levels for production, manufacturing costs, and operating expenses normally are determined after preparing the sales forecast.

True

The following data are available for one of the products manufactured and sold by Ruby Corporation: Maximum capacity with present facilities6,000units Total fixed cost (per period) $ 888,300- Variable cost per unit$ 122.00- Sales price per unit$ 176.00- The unit contribution margin for this product is:

Unit contribution margin = $176.00 − $122.00 = $54.00

The following data are available for one of the products manufactured and sold by Ruby Corporation: Maximum capacity with present facilities7,500units Total fixed cost (per period) $ 819,000- Variable cost per unit$ 123.00- Sales price per unit$ 193.00- The number of units that Ruby must sell to break-even is:

Unit contribution margin = $193.00 − $123.00 = $70.00 Break-even sales volume (in units) = $819,000 ÷ $70.00 = 11,700

The manufacturing efficiency ratio equals:

Value-added time divided by cycle time.

When direct materials are used in production:

Work in Process Inventory is debited.

A sunk cost is the benefit that could have been obtained by pursuing an alternate course of action.

false

Activity-based management is a subset of activity-based costing.

false

Because a budget is merely a forecast of future events, its benefits are extremely narrow and limited.

false

When making decisions, management should thoroughly examine both relevant and irrelevant data.

false

A budget provides a comprehensive plan enabling multiple departments to work together in a coordinated manner.

true

An opportunity cost is a relevant cost when making a business decision.

true

Incremental revenue and incremental costs are relevant to nearly all business decisions.

true

Investments with short payback periods are often considered less risky than those with long payback periods.

true

Return on investment (ROI) tells us how much earnings can be expected for the average invested dollar.

true