Emtehan Final

Which of the following statements is true?

A process costing system will have a separate Work in Process Inventory account for each of the major processes.

Which of the following budgets shows the company's planned profit?

Budgeted income statement

What number does the raw materials budget take directly from the production budget?

Budgeted production

True or false: Cost centers have no impact on revenue.

False

True or false: Using a participative approach to budgeting is less likely to motivate employees than using a top-down approach.

False

Which of the following statements is true about the strategic plan?

It is management's vision of what they desire the organization to achieve over the long term.

Which of the following is a requirement under the Sarbanes-Oxley Act?

Management must conduct a review of the company's internal control system.

Which of the following is not a component of the master budget?

Statement of return on investment

Your grandmother has told you that she can either give you $4,000 now or $5,000 when you graduate from college in 3 years. Your savings account earns 7% interest, compounded annually. Which option would be worth more to you now, and how much more? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1)

The $5,000 in the future is worth $81.50 more than the $4,000 now.

Which of the following statements is correct about the break-even point?

The break-even point quantifies the number of units that must be sold to cover total costs with zero profit.

Which of the following is needed to prepare a sales budget?

The budgeted number of units to be sold

When forming activity pools, the goal is to create as few cost pools as possible, while still capturing major activities.

True

Grace Corporation, whose required rate of return is 14%, is considering the purchase of a new piece of equipment. The internal rate of return of the project, which has a life of 9 years, is 17%. The project would have:

a net present value greater than zero.

The responsibility center in which the manager does not have responsibility and authority over costs is

a revenue center

Budgeted production is calculated by:

adding budgeted unit sales to budgeted ending finished goods inventory, and subtracting budgeted beginning finished goods inventory.

Budgeted cost of goods manufactured reflects:

all of the costs required to manufacture the product, but not to sell it.

Service firms:

assign indirect costs to individual clients or accounts based on an allocation base such as billable hours.

Based on all of the previous budgets, a pro-forma ________ ________ is prepared

balance sheet

Madison Corporation's expected beginning cash balance is $35,000. Cash collections are budgeted at $50,000 and cash disbursements are estimated to be $80,000. The minimum required cash balance is $20,000 and the company can borrow as much as needed in increments of $10,000. Calculate the expected ending cash balance for the month.

beginning balance + budgeted - esteimated disburs = answer + minimum cash balance

To calculate the cash balance before financing on the cash budget, add the ______.

beginning cash balance to the budgeted cash receipts and deduct budgeted cash payments

Lawrence Corporation is considering the purchase of a new piece of equipment. When discounted at the cost of capital of 15%, the project has a net present value of $24,610. When discounted at rate of 19%, the project has a net present value of $(29,030). The internal rate of return of the project is:

between 15% and 19%.

Lawrence Corp. is considering the purchase of a new piece of equipment. When discounted at a hurdle rate of 8%, the project has a net present value of $24,500. When discounted at a hurdle rate of 12%, the project has a net present value of ($28,320). The internal rate of return of the project is:

between 8% and 12%. - given

The final step in the master budgeting process is to prepare the ______.

budgeted balance sheet

When calculating raw materials purchases, the starting point should be:

budgeted production.

Total sales on the sales budget equal budgeted unit sales multiplied by ______.

budgeted sales price per unit

An organization in which decision-making authority is spread throughout the organization is

decentralized

An organization in which decision-making authority is spread throughout the organization is _____.

decentralized

McGown Corporation has the following information: Additional information for the year is as follows: Compute the direct materials used in production.

ending finished goods inv + raw materials purchases - 0 - either raw materials ending inventory or finished goods beginning inventory

The cash budget is one of the primary ______ budgets that is prepared

financial

Financial budgets ______.

impact the budgeted balance sheet include the cash budget include the capital expenditures budget

A top-down approach to budgeting is one that is:

imposed.

A company's planned profit is shown on the budgeted _______ ______.

income statement

A company's planned profit is shown on the budgeted ________ _________.

income statement

The discount rate that would return a net present value equal to zero is the:

internal rate of return.

Budgeting is more important in manufacturing firms than in other types of businesses.

false

True or false: The sales budget is based on the production budget.

false

A step cost:

is fixed over some range of activity.

The source document that captures how much time a worker has spent on various jobs during the period is a:

labor time ticket

Managerial accounting, as compared to financial accounting, is primarily intended to facilitate:

making decisions with timely, relevant information.

All costs of production other than direct materials and direct labor are shown on the _______ ________.

manufacturing overhead

The calculation of unit product cost requires information from the _______ budget.

manufacturing overhead

The transfer pricing method that uses the price the company would charge external customers is the

market price method

Each component of a(n) __________ budget is based on or provides input for another component.

master

Employees throughout the organization have input into the budget-setting process when _______ budgeting is used.

participative ; bottom up

The manager of a(n) ______ center has control over both costs and revenues, but not the use of investment funds.

profit

The responsibility center in which the manager has responsibility and authority over revenues and costs, but not assets, is the:

profit center.

The first step in the process of preparing the master budget is the _______ budget or forecast.

sales

The production budget is based upon the ______ budget

sales

The budget that shows the budgeted expenses for areas other than manufacturing is the _______ and ________ expense budget.

sales and admin

The budget that shows the budgeted expenses for areas other than manufacturing is the ________ and ________ expense budget

sales and admin

Budgeted expenses for costs related to selling the product and managing the business are shown on the _______ budget

selling and administrative

When it comes to preparing budgets, ______.

the budgets needed depend upon the type of firm

A cost that changes, in total, in direct proportion to changes in activity levels is a(n):

variable cost.

Top-down budgeting is:

when top management sets the budget and imposes it on lower levels of the organization.

Which of the following is not a key assumption of cost-volume-profit?

Costs must be fixed.

Almond, Incorporated uses a balanced scorecard. One of the measures on the scorecard is the percentage of revenue from repeat sales. Which balanced scorecard perspective would this measure most likely fit into?

Customer/stakeholder perspective

A firm with a higher degree of operating leverage would be considered less risky than a comparable firm with a lower degree of operating leverage.

False

Degree of operating leverage is calculated by dividing sales by profit.

False

Preference decisions compare an investment with some minimum criteria.

False

The segment margin is useful for evaluating the manager of a profit center because it separates the manager's fixed costs from the variable ones.

False

Budgets that are most likely to motivate employees ______.

are tight but attainable

The minimum required rate of return for a project is the

hudle rate

Florida Incorporated has sales revenue of $1,500,000 resulting in net operating income of $105,000. Average invested assets total $750,000, and the cost of capital is 10%. What is the investment turnover?

$1,500,000/$750,000 = 2.00

Avocado Company has net operating income of $107,820 on sales revenue of $1,797,000. Average invested assets are $599,000, and Avocado Company has an 9% cost of capital. What is the investment turnover?

$1,797,000 / $599,000 = 3.00

Avocado Company has net operating income of $100,000 on sales revenue of $1,000,000. Average invested assets are $500,000, and Avocado Company has an 8% cost of capital. What is the return on investment?

$100,000 / $500,000 = 20%

Florida Incorporated has sales revenue of $1,500,000 resulting in net operating income of $105,000. Average invested assets total $750,000, and the cost of capital is 10%. What is the profit margin?

$105,000/$1,500,000 = 7%

Florida Incorporated has sales revenue of $1,500,000 resulting in net operating income of $105,000. Average invested assets total $750,000, and the cost of capital is 10%. What is the return on investment?

$105,000/$750,000 = 14%

Miami Corporation has net operating income of $120,000, average invested assets of $600,000, and a hurdle rate of 7%. What is the residual income?

$120,000 − (7% × $600,000) = $78,000

Avery Company has two divisions, Polk and Bishop. Polk produces an item that Bishop could use in its production. Bishop currently is purchasing 25,000 units from an outside supplier for $14.00 per unit. Polk is currently operating at less than its full capacity of 610,000 units and has variable costs of $9.00 per unit. The full cost to manufacture the unit is $12. Polk currently sells 460,000 units at a selling price of $20 per unit. Required: What will be the effect on Avery Company's operating profit if the transfer is made internally? What is the minimum transfer price from Polk's perspective? What is the maximum transfer price from Bishop's perspective?

$125,000 More profit = 25,000 × ($14.00 − $9.00) $9.00: the minimum price would be the variable cost for Polk $14.00: the maximum price would be the $14.00 market price for Bishop

Avocado Company has net operating income of $128,920 on sales revenue of $1,030,000. Average invested assets are $586,000, and Avocado Company has an 8% cost of capital. What is the profit margin?

$128,920 / $1,030,000 = 13%

Palmer Corporation is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net operating income of $145,800. The equipment will have an initial cost of $540,000 and a 7-year useful life. If the salvage value of the equipment is estimated to be $22,000, what is the accounting rate of return?

$145,800/$540,000 = 27.00%

How much would you need to deposit in a savings account that earns 7% interest, compounded annually, to withdraw $20,000 eight years from now? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1)

$20,000 × 0.5820 = $11,640

You purchase a home for $200,000 that you expect to appreciate 6% in value on an annual basis. How much will the home be worth in 10 years? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1)

$200,000 × 1.7906 = $358,120.

Belmont Corporation is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net operating income of $200,000. The equipment will have an initial cost of $1,000,000 and an 8-year useful life. If there is no salvage value of the equipment, what is the accounting rate of return?

$200,000/$1,000,000 = 20%

Sugar Corp has a selling price of $29, variable costs of $19 per unit, and fixed costs of $21,000. Maple expects profit of $309,000 at its anticipated level of production. If Sugar sells 5,900 units more than expected, how much higher will its profits be?

$29 − $19 = $10 5,900 × $10 = $59,000

It costs Glenwood, Inc. $78 per unit to manufacture 1,000 units per month of a product that it can sell for $126 each. Alternatively, Glenwood could process the units further into a more complex product, which would cost an additional $25 per unit. Glenwood could sell the more complex product for $156 each. How would processing the product further affect Glenwood's profit?

$30,000 - $25,000 = $5,000

Dade Corporation has residual income of $10,000. If net operating income equals $30,000 and the minimum required rate of return is 8%, what are the average invested assets?

$30,000 − (8% × Assets) = $10,000; Assets = $250,000

Crawford Corporation has an ROI of 15% and a residual income of $10,000. If net operating income is $30,000, what is the amount of average invested assets?

$30,000/15% = $200,000

Sawyer Company had the following information for the year: Sawyer Company used a predetermined overhead rate using estimated overhead of $320,000 and 8,000 estimated direct labor hours. Assume the only inventory balance is an ending Finished Goods balance of $9,000. How much overhead was applied during the year?

$320,000 / 8,000 = $40.00 $40.00 × 7,000 = $280,000

Sawyer Company had the following information for the year: Sawyer Company used a predetermined overhead rate based on estimated overhead of $320,000 and 8,000 estimated direct labor hours. What was the cost of goods manufactured?

$320,000 / 8,000 = 40 $40 × 7,000 = $280,000 DM Used + DL Incurred + 280,000 + 0 - 0 = 715,000

Thunder Corp. has a selling price of $25 per unit, variable costs of $20 per unit, and fixed costs of $35,000. How many units must be sold to break even?

$35,000/($25 - $20) = 7,000

Clay Inc. has two divisions, Myrtle and Laurel. Following is the income statement for the previous year: What would Clay's profit margin be if the Laurel division was dropped and all fixed costs are unavoidable?

$383,800 - $458,000 = ($74,200) loss

Avocado Company has net operating income of $80,000 on sale revenue of $1,000,000. Average invested assets are $500,000, and Avocado Company has an 8% hurdle rate. What is the residual income?

$40,000

Manufacturing overhead was estimated to be $400,000 for the year along with an estimated 20,000 direct labor hours. Actual manufacturing overhead was $415,000, and actual labor hours were 21,000. The amount of manufacturing overhead applied to production would be:

$400,000 / 20,000 = $20.00 $20.00 × 21,000 = $420,000

Medlock Company has two divisions, Wheel and Chassis. The Wheel Division manufactures a wheel assembly that the Chassis Division uses. The variable cost to produce this assembly is $5.00 per unit; full cost is $6.00. The component sells on the open market for $11.00. What will the transfer price be if Medlock uses a pricing rule of variable cost plus 40 percent? (Round your answer to 2 decimal places.)

$5.00 variable cost × 140% = $7.00 5 * 1.4 = $7.00

Manufacturing overhead was estimated to be $500,000 for the year along with an estimated 20,000 direct labor hours. Actual manufacturing overhead was $450,000, and actual direct labor hours were 19,000. The predetermined overhead rate per direct labor hour would be:

$500,000 / 20,000 = $25.00

Nelson Corporation is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $103,000. The equipment will have an initial cost of $515,000 and a 6 year useful life. If the salvage value of the equipment is estimated to be $78,000, what is the payback period?

$515,000/$103,000 = 5.00 years

Cortland Corporation is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net cash flow of $100,000. The equipment will have an initial cost of $400,000 and a 5-year useful life. If the salvage value of the equipment is estimated to be $75,000, what is the increase in annual net income?

$65,000 [($400,000 − $75,000) / 5] $100,000 − $65,000 = $35,000

Washington, Incorporated, produces two products (Product C and Product 2) using two activities: Machining, which uses machine hours as the cost driver, and Inspection, which uses the number of batches as the cost driver. The cost of Machining is $750,000, while the cost of Inspection is $90,000. The products have the following activity demands: What is the activity rate for Machining?

$750,000 / 4,000 = $187.50

Killian Corporation has a residual income of $39,000 on average invested assets of $455,000. If the hurdle rate is 10%, what is the net operating income?

$84,500

Newport Corporation is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $200,000. The equipment will have an initial cost of $900,000 and a 6-year useful life with no salvage value. What is the payback period?

$900,000/$200,000 = 4.5 years

Cranberry has received a special order for 130 units of its product at a special price of $1,700. The product normally sells for $2,200 and has the following manufacturing costs: Assume that Cranberry has sufficient capacity to fill the order without harming normal production and sales. If Cranberry accepts the order, what effect will the order have on the company's short-term profit?

($1,700 − $620 − $320 − $420) × 130 = $44,200 increase

Grover Company has forecast sales to be $125,000 in February, $135,000 in March, $150,000 in April, and $140,000 in May. The average cost of goods sold is 70% of sales. All sales are on made on credit, and sales are collected 60% in the month of sale and 40% the month following. What are budgeted cash receipts in March?

($135,000 × 60%) + ($125,000 × 40%) = $131,000

Grover has forecast sales to be $129,000 in February, $139,000 in March, $156,000 in April, and $145,000 in May. The average cost of goods sold is 80% of sales. All sales are on made on credit and sales are collected 60% in the month of sale, and 40% the month following. What are budgeted cash receipts in March?

($139,000 × .6) + ($129,000 × .4) = $135,000

Byron Corporation is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net cash flow of $150,000. The equipment will have an initial cost of $550,000, a 5-year useful life, and an estimated salvage value of $83,000. If the company's cost of capital is 12%, what is the approximate net present value? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1) Note: Use the appropriate factors from the PV tables.

($150,000 × 3.6048) + ($83,000 × 0.5674) − $550,000 = $37,814

Knox Corp has a selling price of $19, variable costs of $14.44 per unit, and fixed costs of $24,500. If Knox sells 9,000 units, the contribution margin ratio will equal:

($19.00 − $14.44) / $19.00 = 24.00%.

Orchid Corp. has a selling price of $25, variable costs of $20 per unit, and fixed costs of $29,000. If Orchid sells 16,000 units, contribution margin will equal:

($25 × 16,000) − ($20 × 16,000) = $80,000

Walnut has received a special order for 2,500 units of its product at a special price of $230. The product normally sells for $290 and has the following manufacturing costs: Walnut is currently operating at full capacity and cannot fill the order without harming normal production and sales. If Walnut accepts the order, what effect will the order have on the company's short-term profit?

($290 − $230) × 2,500 = $150,000 decrease

Dayton Company has forecast sales to be $211,000 in February, $271,000 in March, $294,000 in April, and $312,000 in May. The average cost of goods sold is 60% of sales. All sales are made on credit, and sales are collected 50% in the month of sale, 30% the month following and the remainder two months after the sale. What are budgeted cash receipts in May?

($312,000 × 50%) + ($294,000 × 30%) + ($271,000 × 20%) = $298,400

Last month Empire Company had a $40,850 profit on sales of $301,000. Fixed costs are $88,580 a month. By how much would sales be able to decrease for Empire to still break even?

($40,850 + $88,580) / $301,000 = 43% $88,580 / 0.43 = $206,000 ($301,000 − $206,000 = $95,000)

Dane Incorporated has forecast purchases on account to be $465,000 in March, 555,000 in April, $630,000 in May, and $735,000 in June. Assume that 70% of purchases are paid for in the month of purchase, and the remaining 30% are paid in the following month. What are budgeted cash payments for April?

($555,000 × 70%) + ($465,000 × 30%) = $528,000

Last month Carlos Company had a $60,000 profit on sales of $300,000. Fixed costs are $120,000 a month. What sales revenue is needed for Carlos to break even?

($60,000 + $120,000)/$300,000 = 60% $120,000/0.60 = $200,000

Blue Incorporated has forecast sales to be $410,000 in February, $540,000 in March, $580,000 in April, and $620,000 in May. The average cost of goods sold is 60% of sales. All sales are made on credit and sales are collected 50% in the month of sale, 30% the month following, and the remainder two months after the sale. What are budgeted cash receipts in May?

($620,000 × 50%) + ($580,000 × 30%) + ($540,000 × 20%) = $592,000

Dayton has forecast sales to be $212,000 in February, $276,000 in March, $297,000 in April, and $315,000 in May. The average cost of goods sold is 60% of sales. All sales are made on credit and sales are collected 55% in the month of sale, 30% the month following and the remainder two months after the sale. What are budgeted cash receipts in May?

(315,000 × .55) + (297,000 × .3) + (276,000 × .15) = $303,750

Dane Inc. has forecast purchases on account to be $315,000 in March, $372,000 in April, $424,000 in May, and $494,000 in June. Sixty five percent of purchases are paid for in the month of purchase, the remaining 35% are paid in the following month. What are budgeted cash payments for April?

(372,000 × .65) + (315,000 × .35) = $352,050

Persius Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $100,000. The equipment will have an initial cost of $400,000 and have a 5 year life. If the salvage value of the equipment is estimated to be $75,000, what is the annual net cash flow?

(400,000-75,000) /5 = 65,000 100,000 + 65,000 = 165,000

Vaughn Company has the following information about a potential capital investment: 1. Calculate the net present value of this project. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round the final answer to nearest whole dollar.) Expected life - 9 years cos of capital - 15%

(82,000 * 4.7716) - 380,000 = 11,271

Avocado Company has an operating income of $150,930 on revenues of $1,043,000. Average invested assets are $559,000, and Avocado Company has an 9% cost of capital. What is the return on investment?

(Operating Income / Avg Invested Assets) * 100 = Answer

Newport Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $204,000. The equipment will have an initial cost of $986,000 and have a 6-year life. There is no salvage value for the equipment. If the hurdle rate is 7%, what is the approximate net present value? Ignore income taxes. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor from the PV tables. Round your final answer to the nearest dollar amount.)

(increase cashflow * 4.7665) - initial cost = answer (negative)

Which type of quality cost would a firm most want to eliminate or reduce as much as possible?

External failure costs

Violet Company has sales of $458,000, net operating income of $251,000, average invested assets of $796,000, and a hurdle rate of 9.50 percent. Calculate Violet's return on investment and its residual income. (Enter your ROI answer as a percentage rounded to two decimal places, (i.e., 0.1234 should be entered as 12.34%). Round your Residual Income (Loss) answer to the nearest whole dollar.)

1) $251,000 / $796,000 = 31.53% 2) $251,000 - ($796,000 × .095) = $175,380

Citrus Company is considering a project that has estimated annual net cash flows of $24,495 for five years and is estimated to cost $115,000. Citrus's cost of capital is 7 percent. Determine the net present value of the project. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Round your final answer to 2 decimal places.)

1) (24,495 * 4.1002) - 115,000 = -14,565.60 2) Unacceptable

Beatrice Company estimates that unit sales of its lawn chairs will be 8,000 in October; 8,700 in November; and 9,850 in December. Compute Beatrice's sales budget for the fourth quarter assuming each unit sells for $23.50.

1) 8,000 * 23.50 = 188,000 2) 8,700 * 23.50 = 204,450 3) 9,850 * 23.50 = 231,475 4) 26,550 * 23.50 = 623,925

Linda's Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the proposed investment follows: Assume straight line depreciation method is used. Required: Help LLT evaluate this project by calculating each of the following: 1. Accounting rate of return. 2. Payback period. 3. Net present value. 4.Without making any calculations, determine whether the IRR is more or less than 14%.

1) Annual Net Inc. Gen / Initial Investment - answer 2) Initial Invest. / (Annual Net Inc. Gen + [(Initial Invest − salvage value) / useful life])

Shaw is a lumber company that also manufactures custom cabinetry. It is made up of two divisions: Lumber and Cabinetry. The Lumber Division is responsible for harvesting and preparing lumber for use; the Cabinetry Division produces custom-ordered cabinetry. The lumber produced by the Lumber Division has a variable cost of $2.70 per linear foot and full cost of $3.70. Comparable quality wood sells on the open market for $8.10 per linear foot. Required: 1. Assume you are the manager of the Cabinetry Division. Determine the maximum amount you would pay for lumber. 2. Assume you are the manager of the Lumber Division. Determine the minimum amount you would charge for the lumber if you have excess capacity. Repeat assuming you have no excess capacity. 3. Assume you are the president of Shaw. Determine a mutually beneficial transfer price assuming there is excess capacity.

1) Given = 8.10 2) Given 2.70 8.10 3) 8.10 - 2.70 = 5.40

Nelson Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $137,250. The equipment will have an initial cost of $525,000 and have a 5 year life. If the salvage value of the equipment is estimated to be $180,000, what is the accounting rate of return? Ignore income taxes.

1) Initial Cost [(intial cost - value of equip) / 5] year = b 2) cash flow increase - b = c c / initial cost = .13 - 13%

Shaylee Corp has $2.00 million to invest in new projects. The company's managers have presented a number of possible options that the board must prioritize. Information about the projects follows: Required: 1. Is Shaylee able to invest in all of these projects simultaneously? 2-A. Calculate the profitability index for each project. 2-B.What is Shaylee's order of preference based on the profitability index?

1) No 2) Present Value of Fut CF / Initial Investment (rounded to four places)

Complete the following table: (Enter all values as positive values.)

1) Prod = Sales + (EI - BI) 2) Sales = BI + prod - EI 3) EI = (BI + prod) - sales 4) BI = Sales - (prod - EI) 5) Sales = BI + prod -EI 6) BI = sales - (prod - EI)

Mango Place has forecast its sales for the coming months as follows: The standard unit sells for $211, the deluxe unit sells for $355. Required: Prepare a sales budget for each of the three months April through June as well as the total for the quarter. Present the budget for each product as well as total sales.

1) Standard Unit * Standard Month Unit 2) Deluxe Unit * Deluxe Month Unit

Blue Marlin Company is considering the purchase of new equipment for its factory. It will cost $255,000 and have a $51,000 salvage value in five years. The annual net income from the equipment is expected to be $28,050, and depreciation is $40,800 per year. Calculate Blue Marlin's accounting rate of return and payback period for the equipment. (Do not round intermediate calculations. Round your Payback Period to 2 decimal places.)

1) expected annual income (28,050)/ total cost (255,000) = .11 = 11% 2) total cost / (expected annual income + depreciation) = answer

Brody Corporation uses a process costing system. Beginning inventory for January consisted of 1,300 units that were 40% completed. During January, 13,000 units were started. On January 31, the inventory consisted of 650 units that were 70% completed. A reconciliation would determine the number of physical units completed during the period. How many were there?

1,300 + 13,000 = X + 650

Orange Corp. has two divisions: Fruit and Flower. The following information for the past year is available for each division: Orange has established a hurdle rate of 8 percent. Required: 1-a. Compute each division's return on investment (ROI) and residual income for last year. 1-b. Determine which manager seems to be performing better. 2. Suppose Orange is investing in new technology that will increase each division's operating income by $146,000. The total investment required is $2,300,000, which will be split evenly between the two divisions. Calculate the ROI and residual income for each division after the investment is made. 3. Determine whether both managers will support the investment.

1-a) ROI ; 360,000 / 3,000,000 = .12 = 12% ROI ; 540,000 / 2,160,000 = .25 = 25% Resid In. ; $360,000 - ($3,000,000 × .08) = $120,000 Resid In. ; $540,000 - ($2,160,000 × .08) = $367,200 1-b) Flower Division 2.). ROI ; $360,000 + $146,000 / $3,000,000 + $1,150,000 = 12.19% ROI ; $540,000 + $146,000 / $2,160,000 + $1,150,000 = 20.73% Resid In. ($360,000 + $146,000) -(($3,000,000 + $1,150,000) × .08) = $174,000 Resid In. ($540,000 + $146,000) -(($2,160,000 + $1,150,000) × .08) = $421,200 3) Accept Reject

Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000 units, May 16,000 units, and June 21,000 units. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. What is budgeted ending finished goods inventory (units) for May?

10% * 21000 = 2100 percentage * june units

Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000 units, May 16,000 units, and June 21,000 units. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. March 1 beginning inventory is projected to be 1,400 units. How many units will be produced in March?

10,000 + (10% × 13,000) − 1,400 = 9,900.

Jasmine Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Jasmine Company's ending finished goods inventory policy is 10% of the following month's sales. March 1 inventory is projected to be 1,400 units. How many units will be produced in March?

10,000 + 10% * 13,000 - 1,400 = 9,900

Lea Company produces hand tools. Budgeted sales for March are 10,400 units. Beginning finished goods inventory in March is budgeted to be 2,100 units, and ending finished goods inventory is budgeted to be 1,900 units. How many units will be produced in March?

10,400 + 1,900 − 2,100 = 10,200

Lea Company produces hand tools. Budgeted sales for March are 10,900 units. Beginning finished goods inventory in March is budgeted to be 1,700 units, and ending finished goods inventory is budgeted to be 1,300 units. How many units will be produced in March?

10,900 + 1,300 − 1,700 = 10,500

Dobson Corporation is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income of $52,000. The equipment will have an initial cost of $506,000 and an eight year useful life with no expected salvage value. The hurdle rate is 14%. Required: Calculate the accounting rate of return. Calculate the payback period.

10.28% = $52,000 / $506,000 4.4 years = $506,000 / {$52,000 + [($506,000 − $0)/8]}

Du Monde Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $100,000. The equipment will have an initial cost of $400,000 and have a 5 year life. The salvage value of the equipment is estimated to be $75,000. If the hurdle rate is 10%, what is the approximate net present value? Ignore income taxes.

100,000 * 3.7908 + 75,000 * 0.6209 - 400,000 = $25,648

Bloomer Company has an operating income of $100,000 on revenues of $1,000,000. Average invested assets are $500,000 and Bloomer Company has an 8% cost of capital. What is the residual income?

100,000 - 8% * 500,000 = 60,000

Summit Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $100,000. The equipment will have an initial cost of $400,000 and have a 7 year life. If the salvage value of the equipment is estimated to be $75,000, what is the accounting rate of return?

100,000/400,000 = 25%

Bloomer Company has an operating income of $100,000 on revenues of $1,000,000. Average invested assets are $500,000, and Bloomer Company has an 8% cost of capital. What is the return on investment?

100,000/500,000 = 20%

Sperling Company's master budget shows expected sales of 10,000 units and expected production of 11,000 units for the month of March. Each unit requires 1/2 hour of direct labor. The direct labor rate is $15.00 per hour. Calculate the expected total direct labor cost for the month of March.

11,000 × 1/2 × $15 = $82,500 expected prod * 1/2 * per hour cost = answer

Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000 units, May 16,000 units, and June 21,000 units. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. March 1 beginning inventory is projected to be 1,400 units. How many units will be produced in April?

13,000 + (10% × 16,000) − (10% × 13,000) = 13,300

Hiawatha Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $200,000. The equipment will have an initial cost of $900,000 and have a 6 year life. There is no salvage value for the equipment. If the hurdle rate is 10%, what is the approximate net present value? Ignore income taxes.

200,000 * 4.3553 - 900,000 = (28,940)

Lynwood, Incorporated, produces two products (Product A and Product X) using two activities: Machining, which uses machine hours as the cost driver, and Inspection, which uses the number of batches as the cost driver. The activity rate for Machining is $125 per machine hour, and the activity rate for Inspection is $500 per batch. The products have the following activity demands: What is the amount of Machining cost assigned to Product X?

3,000 × $125 = $375,000

Peet's Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $100,000. The equipment will have an initial cost of $400,000 and have a 5 year life. If the salvage value of the equipment is estimated to be $75,000, what is the payback period? Ignore income taxes.

400,000/100,000 = 4 yrs

Tofte Co. has forecast sales to be $400,000 in May, $475,000 in June, $575,000 in July and $700,000 in August. Forty percent of sales are cash, the remainder is on credit. Credit sales are collected 60% in the month of sale, the remaining the following month. What are budgeted cash collections for July?

575,000 * 40% + 575,000 * 60% * 60% + 475,000 * 60% * 40% = 551,000

Gardenia Corp. has a selling price of $20, fixed costs of $22,000, and contribution margin of $58,000. If Gardenia sells 14,500 units, how much are variable costs per unit?

58000 / 14500 = 4 20 - 4 = 16

Jillian Incorporated produces leather handbags. The production budget for the next four months is: July 5,100 units, August 7,300 units, September 7,700 units, and October 8,500 units. Each handbag requires 1.3 hours of unskilled labor (paid $13 per hour) and 3.1 hours of skilled labor (paid $18 per hour). How many unskilled labor hours will be budgeted for August?

7,300 × 1.3 = 9,490 hours

Albertville Inc produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How many labor hours will be budgeted for September?

7,500 * 1.3 + 7,500 * 2.2 = 26,250

The Marine Division of Pacific Corporation has average invested assets of $110,000,000. Sales revenue of $50,210,000 results in net operating income of $9,966,000. The hurdle rate is 6%. Required Calculate the return on investment. Calculate the profit margin. Calculate the investment turnover. Calculate the residual income.

9.06% = $9,966,000 / $110,000,000 19.85% = $9,966,000 / $50,210,000 0.4565 = $50,210,000 / $110,000,000 $3,366,000 = $9,966,000 − (6% × $110,000,000)

Martin Clothing Company is a retail company that sells hiking and other outdoor gear specially made for the desert heat. It sells to individuals as well as local companies that coordinate adventure getaways in the desert for tourists. The following information is available for several months of the current year: The majority of Martin's sales (65 percent) are cash, but a few of the excursion companies purchase on credit. Of the credit sales, 30 percent are collected in the month of sale and 70 percent are collected in the following month. All of Martin's purchases are on account with 60 percent paid in the month of purchase and 40 percent paid the following month. Required: 1. Determine budgeted cash collections for July and August. 2. Determine budgeted cash payments for July and August.

?

From a managerial perspective, which budget is most likely to motivate people to succeed in executing it?

A budget that is tight but attainable, because it creates the appropriate level of challenge.

Which of the following is a fixed cost?

A cost that is $28.00 per unit when production is 70,000, and $17.50 per unit when production is 112,000.

Which of the following statements is correct about the functions that fall within various responsibility centers?

A revenue center manager is responsible for fewer functions than a profit center manager.

Which of the following capital budgeting methods focuses on net income rather than cash flows?

Accounting rate of return

Which of the following best defines a product-level activity?

An activity that is performed to support a specific product line

Carol, Inc. is considering three different independent investment opportunities. The present value of future cash flows, initial investment, and net present value for each of the projects are as follows: In what order should Carol prioritize investment in the projects?

B,A,C

Newport Corporation is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net cash flow of $200,000. The equipment will have an initial cost of $900,000 and a 6-year useful life with no salvage value. If the cost of capital is 10%, what is the internal rate of return? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1)

Between 8% and 10%

Which of the following is correct about budgetary slack?

Budgetary slack is a bit of cushion built into a budget, making it more likely budgetary goals will be met.

Temple, Inc. is considering three different independent investment opportunities. The present value of future cash flows, initial investment, net present value, and profitability index for each of the projects are as follows: In what order should Temple prioritize investment in the projects?

C, A, B

Which of the following is not a step in the managerial decision-making process?

Calculate the payback period.

Which of the following statements is correct about the connection between cost centers and revenue?

Cost centers do not directly generate revenue from customers, but they may have an impact on revenue through customer satisfaction and overall quality.

Quail Company builds snowboards. Assume that you have the following information about Quail Company's costs for the most recent year: Determine each of the following for Quail Company: Required: Determine the direct materials costs for Quail Company. Determine the direct labor costs for Quail Company . Determine the manufacturing overhead for Quail Company. Determine the total manufacturing costs for Quail Company. Determine the prime costs for Quail Company. Determine the conversion costs for Quail Company. Determine the total period costs for Quail Company.

DM Cost: raw materials + raw materials DL Cost: wages of workers +. wages of painters MOH Cost: Factory rent + Utilities 4 fact + prod supervisors salary + factory property taxes + depreciation + screws + wages for maintence workers Total Manufcaturing Costs: DL + DM + MOH Prime Costs: DM + DL Conversion Costs: DL + MOH Total Period Costs: Advertising + Sales Manager salary

Which of the following is considered a disadvantage of decentralization?

Decentralization gives managers the opportunity to make decisions that benefit themselves but are not necessarily in the best interest of the organization.

In what type of organization is decision-making authority spread throughout the organization?

Decentralized organization

Which of the following would be included in net income but not in annual cash flows?

Depreciation

Wilson Corporation is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income of $50,000. The equipment will have an initial cost of $600,000, an 8-year useful life, and an estimated salvage value of $100,000. If the company's cost of capital is 10%, what is the approximate net present value? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1) Note: Use the appropriate factors from the PV tables.

Depreciation: ($600,000 − $100,000) / 8 = $62,500 Increase in annual net cash flow: $50,000 + $62,500 = $112,500 Net present value: ($112,500 × 5.3349) + ($100,000 × 0.4665) − $600,000 = $46,826

Which of the following is not a perspective used by the balanced scorecard?

External business processes

Pastoria Enterprises has scheduled raw material purchases of $100,000 in January, $130,000 in February, and $150,000 in March. The company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. Calculate the expected cash disbursements for the month of February.

February purchases ($130,000 × 75%) = $97,500 + January purchases ($100,000 × 25%) $25,000 = $122,500.

Which of the following balanced scorecard perspectives measures how an organization satisfies its shareholders?

Financial/stewardship

Which of the following accounts represents the cost of jobs completed but not yet sold?

Finished Goods Inventory

Peppertree Company has two divisions, East and West. Division East manufactures a component that Division West uses. The variable cost to produce this component is $1.46 per unit; full cost is $2.01. The component sells on the open market for $5.02. Assuming Division East has excess capacity, what is the lowest price Division East will accept for the component? What is the highest price that Division West will pay for it? (Enter your answers in 2 decimal places.)

Given 1) 1.46 2) 5.02

Palmer Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $144,200. The equipment will have an initial cost of $515,000 and have a 7 year life. If the salvage value of the equipment is estimated to be $11,000, what is the accounting rate of return?

Increase Income / Initial Cost = Answer .28 - 28%

Projects that are unrelated to one another, so that investing in one project does not preclude or affect the choice about investing in the other alternatives, are

Independent projects

If materials being placed into production are not traced to a specific job, debit:

Manufacturing Overhead.

Which of the following types of organizations purchases raw materials from suppliers and uses them to create a finished product?

Manufacturing firms

Which of the following budgets are needed to calculate unit product costs?

Manufacturing overhead budget Direct materials budget Direct labor budget

Avocado Company has an operating income of $129,750 on revenues of $1,098,000. Average invested assets are $519,000, and Avocado Company has an 9% cost of capital. What is the profit margin? (Round your answer to the nearest whole percent.)

Operating Income / revenues of ... = answer

Residual income can be calculated as

Operating income - (hurdle rate × average invested assets) The formula for residual income is operating income minus the result of the hurdle rate multiplied by average invested assets.

Which of the following capital budgeting methods does not use discounted cash flows?

Payback period

Which of the following is the forward-looking phase of the planning and control cycle?

Planning

Creating a budget is an important part of which phase of the planning and control process?

Planning/Organizing

Which of the following is a disadvantage of decentralization?

Potential duplication of resources

Which of the following budgets shows how many units will be produced each period?

Production budget

Which of the following is NOT included on a budgeted cash payments budget?

Production in units

Which of the following statements contrasting residual income with return on investment is correct?

ROI may lead to goal incongruence while residual income does not.

Which of the following business segments would not be considered a cost center?

Retail outlet

The manager of Hampton, Inc. is trying to decide whether to make or buy a component of the product it sells. Which of the following costs and benefits is not relevant to the decision?

The selling price of the product

Which of the following is not true of activity cost drivers?

They are strictly volume-based allocation measures.

Activity-based costing systems include non-volume-based cost drivers.

True

Internal failure costs result from defects that are caught during the inspection process.

True

Which of the following statements is true? The master budget may be prepared in any order. Understanding the interrelationships of individual budgets is the key to developing a master budget. Most components of a master budget stand on their own. The first step in preparing the master budget is a budgeted balance sheet.

Understanding the interrelationships of individual budgets is the key to developing a master budget.

Parker Corp., which operates on a calendar year, expects to sell 5,000 units in October, and expects sales to increase 20% each month thereafter. Sales price is expected to stay constant at $11 per unit. What are budgeted revenues for the fourth quarter?

[(5,000) + (5,000 × 1.20) + (5,000 × 1.20 × 1.20)] × $11.00 = $200,200

Chloe Corporation uses a job order cost system with manufacturing overhead applied to products on the basis of direct labor hours. For the upcoming year, Chloe Corporation estimated total manufacturing overhead cost at $480,000 and total direct labor hours of 40,000. During the year, actual manufacturing overhead incurred was $462,500 and 41,000 direct labor hours were used. Required: a Calculate the predetermined overhead rate. b Calculate how much manufacturing overhead will be applied to production. c Is overhead over- or underapplied? By how much? d What account should be adjusted for over- or underapplied overhead? Should the balance be increased or decreased?

a $12 = $480,000 / 40,000 b $492,000 = $12 × $41,000 c $29,500 = $462,500 − $492,000 underapplied d cost o goods sold - decreased

Rock Inc. has three divisions, Granite, Lime and Nina. All fixed costs are unavoidable. Following is the income statement for the previous year: a. What would Rock's profit margin be if the Lime division were dropped? b. What would Rock's profit margin be if the Nina division were dropped?

a) ($90,600) = $314,000 + $128,400 − $533,000 granite CM + Nina CM - Total Fixed Costs = - 90,600 b) ($68,600) = $314,000 + $150,400 − $533,000 Granite CM + Lime CM - Total Fixed Costs = -68,600

Raven Inc. sells a single product for $47. Variable costs include $32.13 for each unit plus a $5 selling expense per unit. Fixed costs are $173,460 per month. a. What is the contribution margin percentage? b. What is the break-even sales revenue? c. What sales revenue is needed to achieve a $237,930 per month profit?

a) 21% = ($47 − $32.13 − $5) / $47 b) $826,000 = $173,460 / 21% c) $1,959,000 = ($173,460 + $237,930) / 21%

Cantor Products sells a product for $77. Variable costs per unit are $43, and monthly fixed costs are $142,800. a. What is the break-even point in units? b. What unit sales would be required to earn a target profit of $278,800? c. Assume they achieve the level of sales required in part b, what is the degree of operating leverage? (Round your answer to 3 decimal places.) d. If sales decrease by 30% from that level, by what percentage will profits decrease? (Do not round intermediate calculation. Round your answer to 2 decimal places.)

a) 4,200 units = $142,800 / ($77 − $43) b) 12,400 units = ($142,800 + $278,800) / ($77 − $43) c) 1.512 = [12,400 × ($77 − $43)] / $278,800 d) 45.37% = 30% × 1.512

Juniper had revenues of $466,000 in March. Fixed costs in March were $258,560 and profit was $39,680. a. What was the contribution margin percentage? b. What monthly sales volume (in dollars) would be needed to break-even? c. What was the margin of safety for March?

a) 64% = ($258,560 + $39,680) / $466,000 b) $404,000 = $258,560 / 64% c) $62,000 = $466,000 − $404,000

Center Company currently produces three products from a joint process. The joint process has total costs of $518,000 per month. All three products, A, B & C, are immediately saleable as they come out of the joint process. Alternatively, any of the products could continue on with additional processing and be sold as a more complete product. The following information is available: a-1. Should Product A be sold immediately or sold after processing further? a-2. How much will the decision affect profit? b-1. Should Product B be sold immediately or sold after processing further? b-2. How much will the decision affect profit? c-1. Should Product C be sold immediately or sold after processing further? c-2. How much will the decision affect profit?

a-1) Sell now b-1) Sell Later c-1) Sell later

Revenue center managers are evaluated primarily on their ______.

ability to meet sales goals

Portland, Incorporated, has formed four activity pools: Product Design, Machining and Production, Machine Setup, and Inspection. Gina Taylor, Production Manager at Portland, oversees processes that are considered part of Machining and Production, Machine Setup, and Inspection. Taylor's salary should be:

allocated among Machining and Production, Machine Setup, and Inspection.

A make-or-buy decision is the same as:

an outsourcing decision.

A direct cost is one that:

can be traced to a specific cost object

The operating budgets feed directly into the ________ ________ , which then feeds directly into the budgeted balance sheet

cash budget

The operating budgets feed directly into the ________ _________ , which then feeds directly into the budgeted

cash budget

Responsibilities of a profit center manager may include

controlling division costs involvement in strategic initiatives related to product success contract negotiations

Palmer Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $128,000. The equipment will have an initial cost of $488,000 and have a 12 year life. If the salvage value of the equipment is estimated to be $80,000, what is the payback period?

depreciation = (initial cost - value of equip) / 12 yr life = B tax of ... + B = C initial cost / C = answer (two decimal places)

The manufacturing overhead budget includes __________

depreciation on production equipment indirect manufacturing costs

Costs that change across decision alternatives are:

differential costs.

The sections of the cash budget are ______.

disbursements financing collections

The sections of the cash budget are ________.

financing collections disbursements

Managers must try to find the "just-right" level of difficulty in setting budgetary goals so they ________.

have motivating effects on employee behavior

The purpose of the cash budget is to:

help managers plan ahead to make certain they will have enough cash on hand to meet their operating needs.

To calculate the direct labor requirement for each quarter, _________.

multiply the number of direct labor hours required per unit times the number of units to be produced

An equivalent unit is calculated by:

multiplying the number of physical units by the percentage of completion.

If the cost of capital is greater than the internal rate of return, the net present value will be:

negative

The accounting rate of return is calculated as:

net operating income divided by initial investment.

Profit margin can be calculated as:

net operating income divided by sales revenue.

The pro-forma income statement is based on the combined ______ budgets.

operating

The sales, production, and purchases budgets are all _______ budgets

operational

A decision that requires managers to choose from among a set of alternative capital investment opportunities is a(n):

preference decision.

An activity that is performed to support a specific product line is a(n):

product-level activity.

The direct materials budget directly relies on the _______ budget.

production

The direct materials budget directly relies on the _________ budget

production

The number of units needed to satisfy sales and provide the desired ending inventory is shown on the ______ budget.

production

The number of units that must be made to satisfy sales needs and to provide for the desired ending inventory is shown on the ________ budget.

production

Advantages of budgeting include ______.

providing benchmarks for evaluating performance providing lead time to solve potential problems promoting cooperation and coordination among different areas within the organization forcing managers to think about and plan for the future

An area of business that a manager has control over and is accountable for is called a(n)

responsibility

An area of business that a manager has control over and is accountable for is called a(n) ________ center.

responsibility

Managers are given charge over a particular part of the business and are then evaluated based on performance in that area in ______.

responsibility accounting

The part of the organization for which managers are responsible is called a:

responsibility center.

Sales quotas are often given to _______ center managers.

revenue ; profit

Acme Company sold 1,080 units for $125 each. Variable costs were $60 per unit and total fixed expenses were $24,000. Prepare a contribution margin income statement

sales revenue - 1,080 * 125 = 135,000 - variable costs - 1,080 * 60 = 64,800 contribution margin = sales revenue - variable costs ---- fixed costs - given profit - contribution margin - fixed costs

Investment turnover can be calculated as:

sales revenue divided by average invested assets.

Budgeted expenses for costs related to selling the product and managing the business are shown on the ______ budget

selling and administrative

In decentralized organizations, decision-making authority is _________.

spread throughout the organization

Budgeted fixed manufacturing overhead per unit is computed by dividing budgeted fixed manufacturing overhead cost by budgeted production units for _______.

the entire year

Budgeted fixed manufacturing overhead per unit is computed by dividing budgeted fixed manufacturing overhead cost by budgeted production units for ________.

the entire year

An opportunity cost is:

the foregone benefit of the path not taken.

The relevant range is:

the range of activity over which we expect our assumptions about cost behavior to hold true.

Budgetary slack occurs when a manager submits a budget that is

too easy to attain