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Questions
Q:
The ___________ is computed by discounting the future net cash flows from the investment at the project's required rate of return and then subtracting the initial amount invested.
Q:
The ____________________ is computed by dividing a project's after-tax net income by the average amount invested in it.
Q:
In evaluating capital budgeting alternatives, there are two primary methods that do not consider the time value of money. These methods are _______________ and __________________. There are also two primary methods that consider the time value of money; these are ___________________ and _______________________.
Q:
A capital budgeting method that considers how quickly a project recovers costs is known as ______________. An enhancement to this method that considers the time value of money is called ____________.
Q:
In this chapter, you examined several short-term managerial decision tasks. Identify (list) any three of these types of decision tasks:
_________________________; _________________________; _________________________
Q:
A _____________________ arises from a past decision and cannot be avoided or changed; it is irrelevant to future decisions.
Q:
An _____________________ is the potential benefit lost by taking a specific action when two or more alternative choices are available.
Q:
An ________________________ requires a future outlay of cash and is relevant for current and future decision making.
Q:
The minimum acceptable rate of return on an investment is called the _________________.
Q:
_____________________ is the process of analyzing alternative long-term investments and deciding which assets to acquire or sell.
Q:
Fields Company currently manufactures one of its parts at a cost of $3.25 per unit. This cost is based on a normal production rate of 50,000 units. Variable costs are $2.10 per unit, fixed costs related to making this part are $40,000 per year, and allocated fixed costs are $45,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Fields is considering buying the part from a supplier for a quoted price of $2.80 per unit guaranteed for a three-year period. Should the company continue to manufacture the part, or should it buy the part from the outside supplier? Support your answer with analyses.
Q:
Sherman Company can sell all of product A that it produces but only 160,000 units of Z and it has limited production capacity. It can produce 6 units of A per hour or 10 units of Z per hour, and it has 30,000 production hours available. Contribution margin per unit is $12 for A and $10 for Z. What is the most profitable sales mix for this company?
Q:
A company inadvertently produced 3,000 defective products. The product cost $15 each to be manufactured and normally sells for $35 each. A salvage company will purchase the defective units as they are for $12 each. The production manager reports that the defects can be corrected for $5 per unit, enabling the company to sell them at a discounted price of $22.00. The repair operations would not affect other production operations. Prepare an analysis that shows which action should be taken.
Q:
Casco Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $280,000 with a 7-year life, no salvage value, and will be depreciated using straight-line depreciation. The expected annual income related to this equipment follows. Compute the (a) payback period and (b) accounting rate of return for this equipment.
Q:
Interest rate
Present value of an annuity of 1 factor 10%
7908 12%
3.6048 14%
3.4331
Q:
A company has a decision to make between two investment alternatives. The company requires a 10% return on investment. Predicted data is provided below:
Investment Y Investment Z
Projected after-tax net income.......................................................... ........................................................ $ 40,000........................... $ 42,000
Investment costs.......................................................... ........................................... $600,000...................................... $675,000
Estimated life .......................................................... ........................................................ 6 years.............................. 6 years
The present value of an annuity for 6 years at 10% is 4.3553. This company uses straight-line depreciation. Required:
(a) Calculate the net present value for each investment.
(b) Which investment should this company select? Explain.
Q:
A company is trying to decide which of two new product lines to introduce in the coming year. The company requires a 12% return on investment. The predicted revenue and cost data for each product line follows: Product A
Product B Unit sales.....................................................
25,000
20,000 Unit sales price.....................................................
$ 30
$ 30 Direct materials.....................................................
$ 15,000
$ 8,000 Direct labor.....................................................
$ 120,000
$ 80,000 Other cash operating expenses.....................................................
$ 30,000
$ 25,000 New equipment costs.....................................................
$2,500,000
$1,500,000 Estimated useful life (no salvage).....................................................
5 years
5 years The company has a 30% tax rate and it uses the straight-line depreciation method. The present value of an annuity of 1 for 5 years at 12% is 3.6048. Compute the net present value for each piece of equipment under each of the two product lines. Which, if either of these two investments is acceptable?
Q:
Baker Corporation has two operating departments, Machining and Assembly, and an office. The three categories of office expenses are allocated to the two departments using different allocation bases. The following information is available for the current period: Office Expenses
Total
Allocation Basis Salaries....................
$30,000
Number of employees Depreciation............
20,000
Cost of goods sold Advertising..............
40,000
Net sales Item
Machining
Assembly
Total Number of employees
1,000
1,500
2,500 Net sales...................
$325,000
$475,000
$800,000 Cost of goods sold....
$ 75,000
$125,000
$200,000 The amount of the total office expenses that should be allocated to Assembly for the current period is:
A. $ 35,750.
B. $ 45,000.
C. $ 54,250.
D. $ 90,000.
E. $600,000.
Q:
Dresden, Inc. has four departments. Information about these departments is listed below. If allocated maintenance cost is based on floor space occupied by each, compute the amount of maintenance cost allocated to the Cutting Department. Maintenance
Cutting
Assembly
Packaging Direct costs.........................
$18,000
$30,000
$70,000
$45,000 Sq. ft. of space....................
500
1,000
2,000
3,000 No. of employees................
2
3
16
4 A. $ 2,769.
B. $ 3,000.
C. $ 3,724.
D. $ 6,000.
E. $18,000.
Q:
A retail store has three departments, 1, 2, and 3, and does general advertising that benefits all departments. Advertising expense totaled $50,000 for the year, and departmental sales were as follows. Allocate advertising expense to Department 2 based on departmental sales. Department 1.. $110,000
Department 2.. 213,750
Department 3.. 151,250
A. $11,000.
B. $14,000.
C. $16,667.
D. $22,500.
E. $50,000.
Q:
Investment center managers are usually evaluated using performance measures
A. that combine income and assets.
B. that combine income and capital.
C. based on assets only.
D. based on income only.
E. that combine assets and capital.
Q:
Calculating return on total assets for an investment center is defined by the following formula for an investment center:
A. Contribution margin/Ending assets.
B. Gross profit/Ending assets.
C. Net income/Ending assets.
D. Net income/Average invested assets.
E. Contribution margin/Average invested assets.
Q:
A sawmill paid $70,000 for logs that produced 200,000 board feet of lumber in 3 different grades and amounts as follows: Grade Production Market Price Structural 25,000 board feet $1,350/1,000 bd. ft. No. 1 Common. 75,000 board feet $ 750/1,000 bd. ft. No. 2 Common.
100,000 board feet
$ 300/1,000 bd. ft. Compute the portion of the $70,000 joint cost to be allocated to No. 2 Common.
A. $ 0.
B. $17,500.
C. $23,333.
D. $35,000.
E. $70,000.
Q:
A sawmill bought a shipment of logs for $40,000. When cut, the logs produced a million board feet of lumber in the following grades. Compute the cost to be allocated to Type 1 and Type 2 lumber, respectively, if the value basis is used. Type 1 - 400,000 bd. ft. priced to sell at $0.12 per bd. ft.
Type 2 - 400,000 bd. ft. priced to sell at $0.06 per bd. ft.
Type 3 - 200,000 bd. ft. priced to sell at $0.04 per bd. ft.
A. $16,000; $16,000.
B. $13,333; $4,444.
C. $40,000; $24,000.
D. $24,000; $12,000.
E. $24,000; $8,000.
Q:
Data pertaining to a company's joint production for the current period follows: A B
Quantities produced. 200 lbs. 100 lbs.
Processing cost after
products are separated.. $1,100 $400
Market value at point
of separation. $8/lb. $16/lb. Compute the cost to be allocated to Product A for this period's $660 of joint costs if the value basis is used.
A. $330.00.
B. $440.00.
C. $220.00.
D. $194.12.
E. $484.00.
Q:
General Chemical produced 10,000 gallons of Breon and 20,000 gallons of Baron. Joint costs incurred in producing the two products totaled $7,500. At the split-off point, Breon has a market value of $6.00 per gallon and Baron $2.00 per gallon. Compute the portion of the joint costs to be allocated to Breon if the value basis is used.
A. $2,500.
B. $3,000.
C. $4,500.
D. $5,625.
E. $1,500.
Q:
Allocating joint costs to products can be based on their relative:
A. Sales values.
B. Direct costs.
C. Gross margins.
D. Total costs.
E. Variable costs.
Q:
Allocations of joint product costs can be based on the relative sales values of the products:
A. And never on the relative physical quantities of the products.
B. Plus an adjustment for future excess margins.
C. And not on any other basis.
D. At the split-off point.
E. Only if the products contain both direct and indirect costs.
Q:
A cost incurred in producing or purchasing two or more products at the same time is a(n):
A. Product cost.
B. Incremental cost.
C. Differential cost.
D. Joint cost.
E. Fixed cost.
Q:
A responsibility accounting system:
A. Is designed to measure the performance of managers in terms of controllable costs.
B. Assigns responsibility for costs to the appropriate managerial level that controls those costs.
C. Should not hold a manager responsible for costs over which the manager has no influence.
D. Can be applied at any level of an organization.
E. All of the choices are correct.
Q:
A responsibility accounting performance report displays:
A. Only actual costs.
B. Only budgeted costs.
C. Both actual costs and budgeted costs.
D. Only direct costs.
E. Only indirect costs.
Q:
Responsibility accounting performance reports:
A. Become more detailed at higher levels of management.
B. Become less detailed at higher levels of management.
C. Are equally detailed at all levels of management.
D. Are useful in any format.
E. Are irrelevant.
Q:
In a responsibility accounting system:
A. Controllable costs are assigned to managers who are responsible for them.
B. Each accounting report contains all items allocated to a responsibility center.
C. Organized and clear lines of authority and responsibility are only incidental.
D. All managers at a given level have equal authority and responsibility.
E. All of the choices are correct.
Q:
The most useful evaluation of a manager's cost performance is based on:
A. Controllable costs.
B. Contribution percentages.
C. Departmental contributions to overhead.
D. Uncontrollable expenses.
E. Direct costs.
Q:
Within an organizational structure, the person most likely to be evaluated in terms of controllable costs would be:
A. A payroll clerk.
B. A cost center manager.
C. A production line worker.
D. A maintenance worker.
E. All of the individuals would be evaluated in terms of controllable costs.
Q:
Plans that identify costs and expenses under each managers control prior to the reporting period are called:
A. Cost accounting systems.
B. Managerial accounting systems.
C. Responsibility accounting systems.
D. Responsibility accounting budgets.
E. Activity-based accounting systems.
Q:
Costs that the manager does not have the power to determine or at least strongly influence are:
A. Variable costs.
B. Uncontrollable costs.
C. Indirect costs.
D. Direct costs.
E. Joint costs.
Q:
An accounting system that provides information that management can use to evaluate the performance of a department's manager is called a:
A. Cost accounting system.
B. Managerial accounting system.
C. Responsibility accounting system.
D. Financial accounting system.
E. Activity-based accounting system.
Q:
A report that accumulates the actual costs that a manager is responsible for and their budgeted amounts is a:
A. Segmental accounting report.
B. Managerial cost report.
C. Controllable expense report.
D. Departmental accounting report.
E. Responsibility accounting performance report.
Q:
Costs that the manager has the power to determine or at least strongly influence are called:
A. Uncontrollable costs.
B. Controllable costs.
C. Joint costs.
D. Direct costs.
E. Indirect costs.
Q:
The most useful allocation basis for the departmental costs of an advertising campaign for a storewide sale is likely to be:
A. Floor space of each department.
B. Relative number of items each department had on sale.
C. Number of customers to enter each department.
D. An equal amount of cost for each department.
E. Proportion of sales of each department.
Q:
The allocation bases for assigning indirect costs include:
A. Only physical bases.
B. Only cost bases.
C. Only value bases.
D. Only unit bases.
E. Any appropriate and reasonable bases.
Q:
A company has two departments, A and B that incur delivery expenses. An analysis of the total delivery expense of $9,000 indicates that Dept. A had a direct expense of $1,000 for deliveries and Dept. B had no direct expense. The indirect expenses are $8,000. The analysis also indicates that 60% of regular delivery requests originate in Dept. A and 40% originate in Dept. B. Departmental delivery expenses for Dept. A and Dept. B, respectively, are:
A. $4,500; $4,500.
B. $5,800; $3,200.
C. $5,500; $3,500.
D. $5,500; $4,500.
E. $5,400; $3,600.
Q:
A difficult problem in calculating the total costs and expenses of a department is:
A. Determining the gross profit ratio.
B. Assigning direct costs to the department.
C. Assigning indirect expenses to the department.
D. Determining the amount of sales of the department.
E. Determining the direct expenses of the department.
Q:
The salaries of employees who spend all their time working in one department are:
A. Variable expenses.
B. Indirect expenses.
C. Direct expenses.
D. Responsibility expenses.
E. Unavoidable expenses.
Q:
Regardless of the system used in departmental cost analysis:
A. Direct costs are allocated, indirect costs are not.
B. Indirect costs are allocated, direct costs are not.
C. Both direct and indirect costs are allocated.
D. Neither direct nor indirect costs are allocated.
E. Total departmental costs will always be the same.
Q:
Expenses that are not easily associated with a specific department, and which are incurred for the benefit of more than one department, are:
A. Fixed expenses.
B. Indirect expenses.
C. Direct expenses.
D. Uncontrollable expenses.
E. Variable expenses.
Q:
Expenses that are easily traced and assigned to a specific department because they are incurred for the sole benefit of that department are called:
A. Direct expenses.
B. Indirect expenses.
C. Controllable expenses.
D. Uncontrollable expenses.
E. Fixed expenses.
Q:
An expense that does not require allocation between departments is a(n):
A. Common expense.
B. Indirect expense.
C. Direct expense.
D. Administrative expense.
E. All of the options are correct.
Q:
The difference between a profit center and an investment center is
A. an investment center incurs costs, but does not directly generate revenues.
B. an investment center incurs no costs but does generate revenues.
C. an investment center is responsible for effectively using center assets.
D. an investment center provides services to profit centers.
E. There is no difference; investment center and profit center are synonymous.
Q:
A department that incurs costs without directly generating revenues is a:
A. Service center.
B. Production center.
C. Profit center.
D. Cost center.
E. Performance center.
Q:
An accounting system that provides information that management can use to evaluate the profitability and/or cost effectiveness of a department's activities is a:
A. Departmental accounting system.
B. Cost accounting system.
C. Service accounting system.
D. Revenue accounting system.
E. Standard accounting system.
Q:
A profit center:
A. Incurs costs, but does not directly generate revenues.
B. Incurs costs and directly generates revenues.
C. Has a manager who is evaluated solely on efficiency in controlling costs.
D. Incurs only indirect costs and directly generates revenues.
E. Incurs only indirect costs and generates revenues.
Q:
A unit of a business that not only incurs costs, but also generates revenues, is called a:
A. Performance center.
B. Profit center.
C. Cost center.
D. Responsibility center.
E. Expense center.
Q:
A cost center is a unit of a business that incurs costs but does not directly generate revenues. All of the following are considered cost centers except:
A. Accounting department.
B. Purchasing department.
C. Research department.
D. Advertising department.
E. All of these could be considered cost centers.
Q:
Departmental contribution to overhead is the same as gross profit generated by that department.
Q:
Departmental contribution to overhead is the amount of revenues for that department less its direct expenses.
Q:
Departmental income statements are prepared for operating as well as service departments.
Q:
The process of preparing departmental income statements starts with allocating service departments.
Q:
A single basis for allocating service department costs to production departments should be used for all service departments.
Q:
Traditional two-stage cost allocation means that indirect costs are first allocated to both operating and service departments, then operating department costs are allocated to service departments.
Q:
A useful measure used to evaluate the performance of an investment center is investment center residual income.
Q:
A measure used to evaluate the manager of an investment center is return on total costs for the investment center.
Q:
Return on investment is a useful measure to evaluate the performance of a cost center manager.
Q:
Investment center managers are evaluated on their use of center assets to generate income.
Q:
In producing oat bran, the joint cost of milling the oats into bran, oatmeal, and animal feed is considered a direct cost to the oat bran, because the oat bran cannot be produced without incurring the joint cost.
Q:
A joint cost of producing two products can be allocated between those products on the basis of the relative physical quantities of each product produced.
Q:
Joint costs can be allocated either using a physical basis or a value basis.
Q:
Joint costs are a group of several costs incurred in producing or purchasing a single product.
Q:
A responsibility accounting performance report usually compares actual costs to budgeted costs amounts.
Q:
A department's direct expenses can be entirely avoided if the department manager carefully controls and monitors operations.
Q:
Generally, it does not matter how cost allocations are designed and explained, because most managers do not care whether the allocations appear to be fair or not.
Q:
Advertising expense can be reasonably allocated to departments on the basis of sales.
Q:
The number of hours that a department uses equipment and machinery is a reasonable basis for allocating depreciation.
Q:
The concepts of direct costs and controllable costs are essentially the same; also, indirect costs and uncontrollable costs are essentially the same.
Q:
Indirect expenses should be allocated to departments based upon the benefits received by each department.
Q:
A department that is responsible for maximizing revenues is known as a profit center.
Q:
Departmental information is important and always disclosed to the public as part of the company's annual report and footnotes.
Q:
Evaluation of the performance of managers of profit centers assumes that the managers can control or influence both costs and revenue generation.
Q:
The __________ is a report of the amount of sales less direct expenses for a department.