ACCT 212 Exam 3

ABC Corporation has three service departments with the following costs and cost drivers: ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost, and activity information is as follows: What is the service department allocation rate for the Personnel Department?

$1,000 per employee Personnel Department Allocation Rate = Personnel Department Costs ÷ Total Personnel Department Usage = $400,000 ÷ (130 + 145 + 125) = $1,000 per employee

Lara Technologies is considering a cash outlay of $192,000 for the purchase of land, which it could lease out for $37,060 per year. If alternative investments that yield a 18% return are available, the opportunity cost of the purchase of the land is

$34,560 The revenue forgone from an alternative investment of cash is the opportunity cost of the purchase of the land.Opportunity Cost of Purchase of Land = Total Cash Outlay × Return on Alternative Investment = $192,000 × 18% = $34,560

The Central Division of Chemical Company has a return on investment of 24% and an investment turnover of 1.71. What is the profit margin?

14.04% Profit Margin = Return on Investment ÷ Investment Turnover = 0.24 ÷ 1.71 = 14.04%

The management of Nebraska Corporation is considering the purchase of a new machine costing $490,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for Years 1 through 5 are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability: The average rate of return for this investment is

16% Average Investment = (Initial Cost + Residual Value) ÷ 2 = $490,000 ÷ 2 = $245,000Estimated Average Annual Income = ($100,000 + $40,000 + $40,000 + $10,000 + $10,000) ÷ 5 = $40,000Average Rate of Return = Estimated Average Annual Income ÷ Average Investment = $40,000 ÷ $245,000 = 16%

Blaser Division had $1,075,000 in invested assets, sales of $1,264,000, income from operations of $248,000, and a minimum acceptable return of 15%. The return on investment for Blaser Division is (round the percentage to one decimal place.)

23.1% Return on Investment (ROI) = Income from Operations ÷ Invested Assets = $248,000 ÷ $1,075,000 = 23.1%

Question Content Area The present value index is computed using which of the following formulas?

Total Present Value of Net Cash Flow ÷ Amount to Be Invested

Discontinuing a product or segment is a huge decision that must be carefully analyzed. Which of the following would be a valid reason not to discontinue an operation?

Variable costs are less than revenues.

Which of the following expenses incurred by a department store is an indirect expense?

salary of vice president of finance

The investment turnover is the ratio of

sales to invested assets

Which of the following is a measure of a manager's performance working in a profit center?

the divisional income statements

In evaluating the profit center manager, the income from operations should be compared

to historical performance or budget

Which of the following would not be considered a good managerial tool in making a decision for determining a capital investment?

using only quantitative measures to evaluate asset purchases

The process by which management plans, evaluates, and controls long-term investment decisions involving fixed assets is called

capital investment analysis

Assume that Division Blue has achieved a yearly income from operations of $163,000 using $920,000 of invested assets. If management has set a minimum acceptable return of 8%, the residual income is

$89,400

Which transfer price approach is used when the transfer price is set at the amount sold to outside buyers?

marked price

When several alternative investment proposals of the same amount are being considered, the one with the largest net present value is the most desirable. If the alternative proposals involve different amounts of investment, it is useful to prepare a relative ranking of the proposals by using a(n)

present value index

Dotterel Corporation uses the variable cost concept of product pricing. The cost information for the production and sale of 35,000 units of its sole product follows. Dotterel desires a profit equal to an 11.2% rate of return on invested assets of $350,000. The variable cost per unit for the production and sale of the company's product is

$11.20 Variable Cost per Unit = Direct Materials Cost per Unit + Direct Labor Cost per Unit + Variable Factory Overhead Cost per Unit + Variable Selling and Administrative Cost per Unit = $4.34 + $5.18 + $0.98 + $0.70 = $11.20 per unit

The condensed income statement of Hayden Corp. for the past year is as follows: Management is considering the discontinuance of the manufacture and sale of Product T at the beginning of the current year. The discontinuance would have no effect on the total fixed costs and expenses or on the sales of Product U. What is the amount of change in income for the current year that will result from the discontinuance of Product T?

$140,000 decrease

Using the provided present value tables, what is the present value of $6,000 to be received at the end of each of the next 4 years, assuming an earnings rate of 10%?

$19,020

Piano Company's costs were over budget by $60,808. Piano Company is divided into two regions. The first region's costs were over budget by $36,068. Determine the amount that the second region's costs were over or under budget.

$24,740 over budget $60,808 − $36,068 = $24,740 over budget

Stryker Industries received an offer from an exporter for 20,000 units of product at $17 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available: Domestic unit sales price$21 Unit manufacturing costs: Variable13 Fixed5 What is the differential cost from the acceptance of the offer?

$260,000

Jacoby Company received an offer from an exporter for 23,900 units of product at $16 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available: Domestic unit sales price$25 Unit manufacturing costs: Variable13 Fixed3 What is the differential revenue from the acceptance of the offer?

$382,400

The rate of earnings is 12% and the cash to be received in 2 years is $58,888. Determine the present value amount, using the following partial table for the present value of $1 at compound interest: Round your answer to the two decimal places.

$46,933.74 Present Value = Amount to Be Received 2 Years from Now × Present Value of $1 to Be Received 2 Years from Now = $58,888 × 0.797 = $46,933.74

Miramar Industries manufactures two products: A and B. The manufacturing operation involves three overhead activities-production setup, materials handling, and general factory activities. Miramar uses activity-based costing to allocate overhead to products. An activity analysis of the overhead revealed the following estimated costs and activity bases for these activities: What is the activity rate for production setup?

$625 per setup

Carmen Co. can further process Product J to produce Product D. Product J is currently selling for $20.00 per pound and costs $15.75 per pound to produce. Product D would sell for $38.00 per pound and would require an additional cost of $8.55 per pound to produce. What is the differential cost of producing Product D?

$8.55 per pound Differential Cost of Producing Product D = Costs per Pound of Product D - Costs per Pound of Product J = ($15.75 + $8.55) - $15.75 = $24.30 - $15.75 = $8.55 per pound

Mallard Corporation uses the product cost concept of product pricing. The cost information for the production and sale of 45,000 units of its sole product follows. Mallard desires a profit equal to a 12% rate of return on invested assets of $800,000. Fixed factory overhead cost$82,000 Fixed selling and administrative costs45,000 Variable direct materials cost per unit5.50 Variable direct labor cost per unit7.65 Variable factory overhead cost per unit2.25 Variable selling and administrative cost per unit0.90 The dollar amount of the desired profit from the production and sale of the company's product is

$96,000 Desired Profit = Desired Rate of Return × Total Assets = 12% × $800,000 = $96,000

Mason Division had $1,162,000 in invested assets, sales of $1,247,000, income from operations to $225,000, and a minimum acceptable return of 14%. The investment turnover for Mason Division is

1.07 Investment Turnover = Sales ÷ Invested Assets = $1,247,000 ÷ $1,162,000 = 1.07

The management of Wyoming Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability of this investment: The cash payback period for this investment is

4 years

The management of Charlton Corporation is considering the purchase of a new machine costing $380,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability of this investment: The cash payback period for this investment is

4 years Cash Payback Period = Initial Cost ÷ Annual Net Cash Inflow = $380,000 ÷ $95,000 = 4 years

Division D of Saunders Company has sales of $350,000, cost of goods sold of $120,000, operating expenses of $58,000, and invested assets of $150,000. What is the profit margin for Division D?

49.1%

An anticipated purchase of equipment for $490,000 with a useful life of 8 years and no residual value is expected to yield the following annual net incomes and net cash flows: What is the cash payback method?

5 years

Heidi Company is considering the acquisition of a machine that costs $558,450. The machine is expected to have a useful life of 6 years, a negligible residual value, an annual net cash flow of $109,500, and annual income from operations of $73,000. What is the estimated cash payback period for the machine?

5.1 years Cash Payback Period = Initial Cost ÷ Annual Net Cash Inflow = $558,450 ÷ $109,500 = 5.1 years

An unfinished desk is produced for $36.00 and sold for $65.00. A finished desk can be sold for $75.00. The additional processing cost to complete the finished desk is $5.95.

Sell Unfinished Desk(Alternative 1) Process Further into Finished Desk(Alternative 2) DifferentialEffects(Alternative 2) Revenues, per unit $65.00 $75.00 $10.00 Costs, per unit -36.00 -41.95 -5.95 Profit (loss) $29.00 $33.05 $4.05

Peyton Company manufactures Phone X and Phone Y. Peyton can sell all it can make of either. Based on the following data, assuming the number of hours is a constraint, which statement is true?

X and Y are equally profitable in using bottleneck resources.

The method of analyzing capital investment proposals that divides the estimated average annual income by the average investment is the

average rate of return method

Which of the following is a measure of a cost center manager's performance?

budget performance report

Which of the following is an advantage of the cash payback method?

easy to use

By converting dollars to be received in the future into current dollars, the present value methods take into consideration that money

has a time value

Question Content Area Sensational Soft Drinks makes three products: iced tea, soda, and lemonade. The following data are available:

iced tea, soda, lemonade $0.70

Falcon Co. produces a single product. Its normal selling price is $26 per unit. The variable costs are $17 per unit. Fixed costs are $22,500 for a normal production run of 5,000 units per month. Falcon received a request for a special order that would not interfere with normal sales. The order was for 1,390 units with a special price of $21 per unit. Falcon has the capacity to handle the special order, and for this order, a variable selling cost of $2 per unit would be eliminated. If the order is accepted, what would be the impact on profit?

increase of $8,340