Question 1

A company should never accept an order for its product at less than its regular sales price.

Accepted Answer

A) True 
 B)False

Question 2

Mc Gee Corporation recently purchased a new machine for its factory operations at a cost of $840000. The investment is expected to generate $250000 in annual cash flows for a period of five years. The required rate of return is 12%. The new machine is expected to have zero salvage value at the end of the five-year period.
Instructions
Calculate the internal rate of return. (Table 2 from Appendix C is needed.)

Accepted Answer

IRR = Capital investment ÷ Ann

Question 3

A decision whether to sell a product now or to process it further depends on whether the incremental _____________ from processing further are greater than the incremental processing ______________.

Accepted Answer

The answer of A decision whether to sell a product...

Question 4

In deciding on the future status of an unprofitable segment management does not usually consider the effect of elimination on related product lines.

Accepted Answer

A) True 
 B)False

Question 5

A hurdle rate is the rate of return set by applying ideal standards.

Accepted Answer

A) True 
 B)False

Question 6

Net present value is the difference between the

Accepted Answer

A)  future cash inflows and the capital investment. 
B)  future cash inflows and the present value of the capital investment. 
C)  present value of future cash inflows and the capital investment. 
D)  present value of future net income and the capital investment. 
A)  future cash inflows and the capital investment. 
B)  future cash inflows and the present value of the capital investment. 
C)  present value of future cash inflows and the capital investment. 
D)  present value of future net income and the capital investment.

Question 7

Match between columns
                        Premises: A capital budgeting technique that identifies the time period required to recover the cost of a capital investment from the annual cash inflow produced by the investment.
The minimum rate of return management requires on an investment.
A cost that cannot be changed by any present or future decision.
The potential benefit that may be lost from following an alternative course of action.
The determination of the profitability of a capital expenditure by dividing expected annual net income by the average investment.
A method used in capital budgeting in which cash inflows are discounted to their present value and then compared to the capital outlay required by the capital investment.
A capital budgeting technique that considers both the estimated total cash inflows from the investment and the time value of money.
A method used in capital budgeting that results in finding the interest yield of the potential investment.
The process of identifying the financial data that change under alternative courses of action.
The process of making capital expenditure decisions in business.

Accepted Answer

The Answer of Net present value method and Sunk cost is...

Question 8

Opportunity cost must be considered in decisions involving

Accepted Answer

A)  budgeting. 
B)  financial accounting. 
C)  CVP analysis. 
D)  resources that have alternative uses. 
A)  budgeting. 
B)  financial accounting. 
C)  CVP analysis. 
D)  resources that have alternative uses.

Question 9

Cha Li Lao Company wants to purchase equipment with a 3-year useful life which is expected to produce cash inflows of $15000 each year for two years and $9000 in year 3. Woods has a 14% cost of capital and uses the following factors. What is the present value of these future cash flows? $\text { Present Value of } 1$
$\begin{array}{cc}
\text { Period } & 14 \% \
\hline 1 &  {.88}\
2 & .77\
3&.67
\end{array}$

Accepted Answer

A)  $26130 
B)  $30780 
C)  $30870 
D)  $34750 
A)  $26130 
B)  $30780 
C)  $30870 
D)  $34750

Question 10

Suite Sixteen Makeup produces facial moisturizer. Each bottle of moisturizer costs $10 to produce and can be sold for $13. The bottles can be sold as is or processed further into sunscreen at a cost of $14 each. Suite Sixteen Makeup could sell the bottles of sunscreen for $22 each.

Accepted Answer

A)  Moisturizer must be processed further because its profit is $8 each. 
B)  Moisturizer must not be processed further because costs increase more than revenue. 
C)  Moisturizer must not be processed further because it decreases profit by $2 each. 
D)  Moisturizer must be processed further because it increases profit by $3 each. 
A)  Moisturizer must be processed further because its profit is $8 each. 
B)  Moisturizer must not be processed further because costs increase more than revenue. 
C)  Moisturizer must not be processed further because it decreases profit by $2 each. 
D)  Moisturizer must be processed further because it increases profit by $3 each.

Question 11

Niro Company has money available for investment and is considering two projects each costing $71000. Each project has a useful life of 3 years and no salvage value. The investment cash flows follow:
Instructions
If 8% is an acceptable earnings rate which project should be selected? Justify your response. (Table 1 from Appendix C is needed.)

Accepted Answer

Project B is acceptable since its net pr

Question 12

Grayson Company is considering two new projects each requiring an equipment investment of $72000. Each project will last for three years and produce the following annual net income. 
$\begin{array} { c r r } 
\text { Year } & { \text { TIP } } & { \text { TOP } } \
1 & \$ 8,000 & \$ 9,000 \
2 & 9,000 & 9,000 \
3 & 14,000 & 9,000
\end{array}$ The equipment will have no salvage value at the end of its three-year life. Grayson Company uses straight-line depreciation. Grayson requires a minimum rate of return of 12%. Present value data are as follows:   Instructions
(a) Compute the net present value of each project.
(b) Which project should be selected? Why?

Accepted Answer

@#IMG-DLM& *Net income plus annual depreciation of

Question 13

An important purpose of management accounting is to provide _____________________ for decision making.

Accepted Answer

relevant i

Question 14

A company is deciding on whether to replace some old equipment with new equipment. Which of the following is not a relevant cost for incremental analysis?

Accepted Answer

A)  Annual operating cost of the new equipment 
B)  Annual operating cost of the old equipment 
C)  Net cost of the new equipment 
D)  Accumulated depreciation on the old equipment 
A)  Annual operating cost of the new equipment 
B)  Annual operating cost of the old equipment 
C)  Net cost of the new equipment 
D)  Accumulated depreciation on the old equipment

Question 15

Valerta Company used the net present value method and determined that project 34 had a zero net present value. What does this tell management about the project?

Accepted Answer

A)  The return from this project is equal to the cost of capital. 
B)  The project guarantees company profitability. 
C)  The project's cash inflows will equal its cash outflows. 
D)  The project earns the company's desired minimum rate of return. 
A)  The return from this project is equal to the cost of capital. 
B)  The project guarantees company profitability. 
C)  The project's cash inflows will equal its cash outflows. 
D)  The project earns the company's desired minimum rate of return.

Question 16

Ellen Company manufactures kitchen utensils. Bolla Company has approached Ellen with a proposal to sell the company spatulas at a price of $100000 for 100000 units. Elllen is currently making the spatulas in its own factory. The following costs are associated with this part of the process when 100000 spatulas are produced: $\begin{array}{lr}
\text { Direct material } & \$ 41,000 \
\text { Direct labor } & 19,000 \
\text { Manufacturing overhead } & 50,000 \
\text { Total }&\$110,000
\end{array}$ The manufacturing overhead consists of $36000 of costs that will be eliminated if the components are no longer produced by Ellen. From Ellen's point of view how much is the incremental cost or savings if the spatulas are bought instead of made?

Accepted Answer

A)  $10000 incremental savings 
B)  $4000 incremental cost 
C)  $4000 incremental savings 
D)  $10000 incremental cost 
A)  $10000 incremental savings 
B)  $4000 incremental cost 
C)  $4000 incremental savings 
D)  $10000 incremental cost

Question 17

The annual rate of return is computed by dividing expected annual net income by average investment.

Accepted Answer

A) True 
 B)False

Question 18

Incremental analysis would not be appropriate for

Accepted Answer

A)  a make or buy decision. 
B)  an allocation of limited resource decision. 
C)  elimination of an unprofitable segment. 
D)  analysis of manufacturing variances. 
A)  a make or buy decision. 
B)  an allocation of limited resource decision. 
C)  elimination of an unprofitable segment. 
D)  analysis of manufacturing variances.

Question 19

If a company must expand capacity to accept a special order it is likely that there will be

Accepted Answer

A)  an increase in unit variable costs. 
B)  no increase in fixed costs. 
C)  an increase in variable and fixed costs per unit. 
D)  an increase in fixed costs. 
A)  an increase in unit variable costs. 
B)  no increase in fixed costs. 
C)  an increase in variable and fixed costs per unit. 
D)  an increase in fixed costs.

Question 20

Oscar Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: $\begin{array}{lll}&\text { Old Machine}&\text { New Machine }\
\text { Cost } & \$ 250,000 & \$ 500,000 \
\text { Accumulated Depreciation } & 75,000 & -0 \text { - } \
\text { Remaining useful life } & 10 \text { years } & -0 \text { - } \
\text { Useful life } & -0 \text { - } & 10 \text { years } \
\text { Annual operating costs } & \$ 200,000 & \$ 150,500
\end{array}$ If the old machine is replaced it can be sold for $20000. The net advantage (disadvantage) of replacing the old machine is

Accepted Answer

A)  $15000 
B)  $20000 
C)  $(5000) 
D)  $(50000) 
A)  $15000 
B)  $20000 
C)  $(5000) 
D)  $(50000)

A company should never accept an order for its product at less than its regular sales price.

A decision whether to sell a product now or to process it further depends on whether the incremental _ from processing further are greater than the incremental processing __.

In deciding on the future status of an unprofitable segment management does not usually consider the effect of elimination on related product lines.

A hurdle rate is the rate of return set by applying ideal standards.

Net present value is the difference between the

Opportunity cost must be considered in decisions involving

Suite Sixteen Makeup produces facial moisturizer. Each bottle of moisturizer costs $10 to produce and can be sold for $13. The bottles can be sold as is or processed further into sunscreen at a cost of $14 each. Suite Sixteen Makeup could sell the bottles of sunscreen for $22 each.

An important purpose of management accounting is to provide _____________________ for decision making.

A company is deciding on whether to replace some old equipment with new equipment. Which of the following is not a relevant cost for incremental analysis?

Valerta Company used the net present value method and determined that project 34 had a zero net present value. What does this tell management about the project?

The annual rate of return is computed by dividing expected annual net income by average investment.

Incremental analysis would not be appropriate for

If a company must expand capacity to accept a special order it is likely that there will be

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

Exam 26: Incremental Analysis and Capital Budgeting

A company should never accept an order for its product at less than its regular sales price.

A decision whether to sell a product now or to process it further depends on whether the incremental _____________ from processing further are greater than the incremental processing ______________.

In deciding on the future status of an unprofitable segment management does not usually consider the effect of elimination on related product lines.

A hurdle rate is the rate of return set by applying ideal standards.

Net present value is the difference between the

Opportunity cost must be considered in decisions involving

Suite Sixteen Makeup produces facial moisturizer. Each bottle of moisturizer costs $10 to produce and can be sold for $13. The bottles can be sold as is or processed further into sunscreen at a cost of $14 each. Suite Sixteen Makeup could sell the bottles of sunscreen for $22 each.

An important purpose of management accounting is to provide _____________________ for decision making.

A company is deciding on whether to replace some old equipment with new equipment. Which of the following is not a relevant cost for incremental analysis?

Valerta Company used the net present value method and determined that project 34 had a zero net present value. What does this tell management about the project?

The annual rate of return is computed by dividing expected annual net income by average investment.

Incremental analysis would not be appropriate for

If a company must expand capacity to accept a special order it is likely that there will be

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

A decision whether to sell a product now or to process it further depends on whether the incremental _ from processing further are greater than the incremental processing __.