Question 1

Each of the following is a disadvantage of buying rather than making a component of a company's product except that

Accepted Answer

A)  quality control specifications may not be met. 
B)  the outside supplier could increase prices significantly in the future. 
C)  profitable product lines may be dropped. 
D)  the supplier may not deliver on time. 
A)  quality control specifications may not be met. 
B)  the outside supplier could increase prices significantly in the future. 
C)  profitable product lines may be dropped. 
D)  the supplier may not deliver on time.

Question 2

The opportunity cost of an alternate course of action that is relevant to a make-or-buy decision is

Accepted Answer

A)  subtracted from the "Make" costs. 
B)  added to the "Make" costs. 
C)  added to the "Buy" costs. 
D)  None of these answer choices are correct. 
A)  subtracted from the "Make" costs. 
B)  added to the "Make" costs. 
C)  added to the "Buy" costs. 
D)  None of these answer choices are correct.

Question 3

Which of the following is true if a company can accept a special order without affecting its regular sales and is within plant capacity?

Accepted Answer

A)  Net income will not be affected. 
B)  Net income will increase if the special sales price per unit exceeds the unit variable costs. 
C)  Net income will decrease. 
D)  Additional fixed costs will probably be incurred. 
A)  Net income will not be affected. 
B)  Net income will increase if the special sales price per unit exceeds the unit variable costs. 
C)  Net income will decrease. 
D)  Additional fixed costs will probably be incurred.

Question 4

Moon City Enterprises relies heavily on a copier machine to process its paperwork. Recently the copy clerk has not been able to process all the necessary copies within the regular work week. Management is considering updating the copier machine with a faster model. $\begin{array}{lrr}
& \text { Current Copier}&
\text { New Model}\
 \text { Original purchase cost } & \$ 15,000 & \$ 21,000 \
\text { Accumulated depreciation } & 12,000 & - \
\text { Estimated operating costs (annual) } & 9,000 & 3,700 \
\text { Useful life } & 4 \text { years } & 4 \text { years }
\end{array}$  If sold now the current copier would have a salvage value of $1000. If operated for the remainder of its useful life the current machine would have zero salvage value. The new machine is expected to have zero salvage value after five years.
Instructions
Prepare an analysis to show whether the company should retain or replace the machine.

Accepted Answer

The current copier should be r

Question 5

A capital budgeting technique which takes into consideration the time value of money is the

Accepted Answer

A)  annual rate of return approach. 
B)  return on stockholders' equity approach. 
C)  payback approach. 
D)  net present value method. 
A)  annual rate of return approach. 
B)  return on stockholders' equity approach. 
C)  payback approach. 
D)  net present value method.

Question 6

Opportunity cost is usually

Accepted Answer

A)  a standard cost. 
B)  a potential benefit. 
C)  a sunk cost. 
D)  included as part of cost of goods sold. 
A)  a standard cost. 
B)  a potential benefit. 
C)  a sunk cost. 
D)  included as part of cost of goods sold.

Question 7

Wayton Medical Center is considering purchasing an ultrasound machine for $1135000. The machine has a 10-year life and an estimated salvage value of $40000. Installation costs and freight charges will be $24300 and $700 respectively. The Center uses straight-line depreciation.
The medical center estimates that the machine will be used five times a week with the average charge to the patient for ultrasound of $850. There are $10 in medical supplies and $40 of technician costs for each procedure performed using the machine.
Instructions
(a) Compute the payback period for the new ultrasound machine.
(b) Compute the annual rate of return for the new machine.

Accepted Answer

(a) Cost of the ultrasound machine: $113

Question 8

Renee Company has old inventory on hand that cost $12000. Its scrap value is $16000. The inventory could be sold for $40000 if manufactured further at an additional cost of $12000. What should Renee do?

Accepted Answer

A)  Sell the inventory for $16000 scrap value 
B)  Dispose of the inventory to avoid any further decline in value 
C)  Hold the inventory at its $12000 cost 
D)  Manufacture further and sell it for $40000 
A)  Sell the inventory for $16000 scrap value 
B)  Dispose of the inventory to avoid any further decline in value 
C)  Hold the inventory at its $12000 cost 
D)  Manufacture further and sell it for $40000

Question 9

Use the following table $\text { Present Value of an Annuity of } 1$$\begin{array}{rrrr}
\text { Period } & 8 \% & 9 \% & 10 \%\
1 & .926 & .917 & .909 \
2 & 1.783 & 1.759 & 1.736 \
3 & 2.577 & 2.531 & 2.487
\end{array}$ A company has a minimum required rate of return of 8% and is considering investing in a project that costs $175000 and is expected to generate cash inflows of $70000 at the end of each year for three years. The net present value of this project is

Accepted Answer

A)  $5390. 
B)  $35000. 
C)  $2170. 
D)  $180390. 
A)  $5390. 
B)  $35000. 
C)  $2170. 
D)  $180390.

Question 10

The basic decision rule in a sell or process further decision is: sell without further processing as long as the incremental revenue from processing exceeds the incremental processing costs.

Accepted Answer

A) True 
 B)False

Question 11

JP Company is considering two capital investment proposals. Estimates regarding each project are provided below: $\begin{array}{lr}
&\text { Project Echo}&\text { Project Charlie }\
\text { Initial investment } & \$ 400,000&\$600,000 \
\text { Annual net income } & 20,000 &42,000\
\text { Net annual cash inflow } & 100,000&142,000 \
\text { Estimated useful life } & 5 \text { years } &6 \text { years } \
\text { Salvage value } & 0&0
\end{array}$ The company requires an 11% rate of return on all new investments. $\begin{array}{lllll}
\text { Periods } & 9 \%&10 \% &11 \% &12 \%\
\hline5 & 3.890 & 3.791 & 3.696 & 3.605 \
6 & 4.486 & 4.355 & 4.231 & 4.111
\end{array}$
- The annual rate of return for Project Echo is

Accepted Answer

A)  5%. 
B)  10%. 
C)  25%. 
D)  50%. 
A)  5%. 
B)  10%. 
C)  25%. 
D)  50%.

Question 12

A major advantage of the annual rate of return technique is that it considers the time value of money.

Accepted Answer

A) True 
 B)False

Question 13

Bish Company had an investment which cost $270000 and had a salvage value at the end of its useful life of zero. If Bish's expected annual net income is $16200 the annual rate of return is:

Accepted Answer

A)  6%. 
B)  8.3%. 
C)  16.7%. 
D)  12%. 
A)  6%. 
B)  8.3%. 
C)  16.7%. 
D)  12%.

Question 14

Incremental analysis is synonymous with

Accepted Answer

A)  difficult analysis. 
B)  differential analysis. 
C)  gross profit analysis. 
D)  derivative analysis. 
A)  difficult analysis. 
B)  differential analysis. 
C)  gross profit analysis. 
D)  derivative analysis.

Question 15

A cost that cannot be changed by any present or future decision is a(n)

Accepted Answer

A)  incremental cost. 
B)  opportunity cost. 
C)  sunk cost. 
D)  variable cost. 
A)  incremental cost. 
B)  opportunity cost. 
C)  sunk cost. 
D)  variable cost.

Question 16

Which of the following steps in the management decision-making process does not generally involve the managerial accountant?

Accepted Answer

A)  Determine possible courses of action 
B)  Make the appropriate decision based on relevant data 
C)  Prepare internal reports that review the impact of decisions 
D)  None of these answer choices are correct. 
A)  Determine possible courses of action 
B)  Make the appropriate decision based on relevant data 
C)  Prepare internal reports that review the impact of decisions 
D)  None of these answer choices are correct.

Question 17

An opportunity cost is the potential benefit obtained by using resources in an alternative course of action.

Accepted Answer

A) True 
 B)False

Question 18

To determine annual cash inflow depreciation is

Accepted Answer

A)  subtracted from net income because it is an expense. 
B)  subtracted from net income because it is an outflow of cash. 
C)  added back to net income because it is an inflow of cash. 
D)  added back to net income because it is not an outflow of cash. 
A)  subtracted from net income because it is an expense. 
B)  subtracted from net income because it is an outflow of cash. 
C)  added back to net income because it is an inflow of cash. 
D)  added back to net income because it is not an outflow of cash.

Question 19

What will most likely occur if a company eliminates an unprofitable segment when a portion of fixed costs are unavoidable?

Accepted Answer

A)  All expenses of the eliminated segment will be eliminated. 
B)  Net income will decrease. 
C)  Net income will increase. 
D)  The company's variable costs will increase. 
A)  All expenses of the eliminated segment will be eliminated. 
B)  Net income will decrease. 
C)  Net income will increase. 
D)  The company's variable costs will increase.

Question 20

Financial data are developed for a course of action under an incremental basis and then it is compared to data developed under a differential basis before a decision is made.

Accepted Answer

A) True 
 B)False

Exam 26: Incremental Analysis and Capital Budgeting

Each of the following is a disadvantage of buying rather than making a component of a company's product except that

The opportunity cost of an alternate course of action that is relevant to a make-or-buy decision is

Which of the following is true if a company can accept a special order without affecting its regular sales and is within plant capacity?

A capital budgeting technique which takes into consideration the time value of money is the

Opportunity cost is usually

Renee Company has old inventory on hand that cost $12000. Its scrap value is $16000. The inventory could be sold for $40000 if manufactured further at an additional cost of $12000. What should Renee do?

The basic decision rule in a sell or process further decision is: sell without further processing as long as the incremental revenue from processing exceeds the incremental processing costs.

A major advantage of the annual rate of return technique is that it considers the time value of money.

Bish Company had an investment which cost $270000 and had a salvage value at the end of its useful life of zero. If Bish's expected annual net income is $16200 the annual rate of return is:

Incremental analysis is synonymous with

A cost that cannot be changed by any present or future decision is a(n)

Which of the following steps in the management decision-making process does not generally involve the managerial accountant?

An opportunity cost is the potential benefit obtained by using resources in an alternative course of action.

To determine annual cash inflow depreciation is

What will most likely occur if a company eliminates an unprofitable segment when a portion of fixed costs are unavoidable?

Financial data are developed for a course of action under an incremental basis and then it is compared to data developed under a differential basis before a decision is made.

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories

Accounting Information Systems

Fraud, Internal Control, and Cash

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Corporations: Organization and Capital Stock Transactions

Corporations: Dividends, Retained Earnings, and Income Reporting

Long-Term Liabilities

Investments

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Time Value of Money

Filters