Accounting final quizzes

Tillison Corporation makes three products that use the current constraint which is a particular type of machine. Data concerning those products appear below: TK KA PA Sell p. per unit: $373.86 $82.29 $78.26 Var. cost per unit: $304.42 $60.97 $64.22 Min. on constraint. $6.20 $1.30 $1.30 Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource? A) $10.80 per minute B) $69.44 per unit C) $16.40 per minute D) $14.04 per unit

A) $10.80 TK KA PA $373.86 $82.29 $78.26 -$304.42 -$60.97 -$1.30 = CM per unit (A) $69.44 $21.32 $14.04 Amount of constrained resource required to produce one unit (B) $6.20 $1.30 $1.30 CM per unit of constrained resource (A)/(B)= $11.20 $16.40 $10.80 2 3 1

(Ignore income taxes in this problem.) Lajeunesse Corporation uses a discount rate of 19% in its capital budgeting. Partial analysis of an investment in automated equipment with a useful life of 8 years has thus far yielded a net present value of -$127,991. This analysis did not include any estimates of the intangible benefits of automating this process nor did it include any estimate of the salvage value of the equipment. Ignoring any salvage value, to the nearest whole dollar how large would the additional cash flow per year from the intangible benefits have to be to make the investment in the automated equipment financially attractive? A)$32,370 B)$15,999 C)$127,991 D)$24,318

A) $32,370 Minimal annual cash flows from from the intangible benefits =negative net present value to be offset/present value factor =$127,991/3.954=$32,370

(Ignore income taxes in this problem.) Dube Corporation is considering the following three investment projects: Project: D E F Investment required: $11,000 $41,000 $86,000 P.V of cash inflows: $11,330 $46,330 $95,460 The profitability index of investment project E is closest to: A) 0.13 B) 1.13 C) 0.87 D) 0.12

A) 0.13 Project E Investment required(a) $(41,000) -P.V of cash inflows: $46,330 Net present value (b) $5,330 Project profitability index (a)/(b): 0.13

Peters company is considering a machine to further automate its production line. The machine would cost $30,000, and have a ten-year life with no salvage value. It would save $8,000 per year in labor costs, but would increase power costs by $1,000 annually. The company's discount rate is 12%. The present value of the annual net cost savings is? A) $39,550 B) $45,200 C) $5,650 D) $70,000

A) 39,550 Savings in labor cost: 8000 (minus) increased power costs: 1,000 Net cost savings =7000 Pv factor for 12% for 10 years (table) x5.650 Present value cost of savings= 32,550

Which product makes the most profitable use of the company's constrained resource? A B Contribution margin per unit $12 $15 Additional Units that can be processed in one hour 60 30 A) A is more profitable; so produce A B) B is more profitable; so produce B C) A is less profitable; so produce B D) A and B are both profitable and should be produced.

A) A is more profitable; so produce A

A machine is under consideration that would cost $30,000, save $6,000 per year in cash operating costs, and have an expected life of 15 years with zero salvage value. The simple rate of return is approximately? A) 20% B) 13.3% C) 18% D) 10%

B) 13.3% The annual incremental net operating income is the difference between the cost savings of $6,000 per year and the annual depreciation charge of $2,000 = $30,000/15 years Simple rate of return = (annual incremental net operating income/initial investment) =($6,000-$2,000)/$30,000 = 13.3%

What is the step that limits total output because it has the smallest capacity called? A) Maximum Constraint B) Bottleneck C) Weakest Link D) All of the above

B) Bottleneck

The simple rate of return suffers from which limitations? (Choose all that apply) A) Focuses on cash flows rather than accounting net operating income B) Focuses on accounting net operating income rather than cash flows C) Does not involve discounting cash flows D) None of the above

B) Focuses on accounting net operating income rather than cash flows C) does not involve discounting cash flows

Luke Skywalker currently works as a Jedi Knight. He is thinking of giving up that job and going to school to become a gourmet chef. Which of the following is the opportunity cost of giving up his Jedi Knight job? A) The cost of chef school B) His lost wages as a jedi knight C)Conjugal visits with princess leia D) The cost of commuting to the chef academy

B) His lost wages as a Jedi Knight

(13-19) Fimbrez Corporation has provided the following data concerning an investment project that it is considering: Initial investment: $360,000 Annual cash flow: $118,000 per year Expected life of project: 4 years Discount rate: 12% The net present value of the project is closest to: A) $358,484 B) $360,000 C) $(1,516) D) $112,000

C) $(1,516)

An investment of $30,000 in working capital would provide cash inflows of $10,000 per year for six years. If the company's discount rate is 18%, and if the working capital is released at the end of the six years, the the project's net present value is? A) $4,980 B) $(4,980) C) $16,080 D) $(12,360)

C) $16,080

(Ignore income taxes in this problem.) Crockin Corporation is considering a machine that will save $8,000 a year in cash operating costs each year for the next six years. At the end of six years it would have no salvage value. If this machine costs $33,848 now, the machine's internal rate of return is closest to: A) 9% B) 10% C) 11% D) 12%

C) 11% Factor of the internal rate of return= Investment required/Annual net cash inflow =$33,848/$8,000=4.231 The factor is the present value of an annuity for 6 periods at 11% per period.

(Ignore income taxes in this problem.) Chee Corporation has gathered the following data on a proposed investment project: Investment required in equipment: 240,000 Annual cash inflows: $50,000 Salvage Value: $0 Life of investment: 8 Years Required rate of return: 10% The company uses straight-line depreciation. Assume cash flows occur uniformly throughout a year except for the initial investment. The payback period for the investment is closest to: A) 0.2 years B) 2.5 years C) 4.8 years D) 5.0 years

C) 4.8 years Payback period= investment required/annual net cash inflow =240,000/50,000 per year=4.8 years

Which of the following is a typical cash outflow? A. Initial investment in equipment B. Periodic outlays for repairs and maintenance C. Expansion in working capital D. All of the above.

D. All of the above.

Future costs that do not differ between the alternatives in a decision are avoidable costs.

False

Future costs are always relevant in decision making.

False. Future costs are relevant only if they differ between alternatives; future costs that do not differ between alternatives are irrelevant.

Gary Corporation produces products X, Y, and Z from a single raw material input. Budgeted data for the next month is as follows: X Y Z Units produced: 2,500 3,000 4,000 Per.Unit sales value at split off: $20 $22 $25 Added processing costs per unit: $8 $8.50 $8 Per unit sales value if processed further: $30 $30 $35 If the cost of raw material input is $150,000, which of the products should be processed beyond the split-off point? Product: X Y Z A) No Yes No B) No Yes Yes C) Yes No Yes D) Yes Yes No

Option C. X Y Z Final sales value after further processing: $30 $30 $35 (Minus) Sales value at split-off point: $20 $22 $25 =Incremental revenue after futher processing: $10 $8 $10 (Minus) cost of further processing: $8 $8.50 $8 =Profit (loss) from further processing: $2 $(0.50) $2 Only product x and product z should be processed beyond split-off point.

Costs that are relevant in one decision are not necessarily relevant in another decision.

True

Preference decisions follow screening decisions and seek to rank investment proposals in order of their desirability.

True

The internal rate of return is the discount rate for which a project's net present value is zero.

True