Exam 26: Standard Costs and Balanced Scorecard

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.

The source of data to serve as inputs in incremental analysis is generated by

Use the following table, rate cash inflows of $70,000 at the end of each year for three years. The net present value of this project is

Fornelli, Inc. can produce 100 units of a component part with the following costs: If Fornelli, Inc. can purchase the units externally for $80,000, by what amount will its total costs change?

It is always better to sell now rather than process further because of the time value of money.

A company projects an increase in net income of $225,000 each year for the next five years if it invests $900,000 in new equipment. The equipment has a five-year life and an estimated salvage value of $300,000. What is the annual rate of return on this investment?

Miley, Inc. has excess capacity. Under what situations should the company accept a special order for less than the current selling price?

Puckett Company is proposing to spend $140,000 to purchase a machine that will provide annual cash flows of $25,000. The appropriate present value factor for 10 periods is 5.65. Instructions Compute the proposed investment's net present value, and indicate whether the investment should be made by Puckett Company.

Baden Company manufactures a product with a unit variable cost of $50 and a unit sales price of $88. Fixed manufacturing costs were $240,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $70 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows:

Fehr Company is considering two capital investment proposals. Estimates regarding each project are provided below: The company requires a 10% rate of return on all new investments. The cash payback period for Project Blue is

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

All of the following are relevant in deciding whether to eliminate an unprofitable segment except the segment's

Harris Timber Corporation uses a machine that removes the bark from cut timber. The machine is unreliable and results in a significant amount of downtime and excessive labor costs. The management is considering replacing the machine with a more efficient one which will minimize downtime and excessive labor costs. Data are presented below for the two machines: It is estimated that the new machine will produce annual cost savings of $95,000. The old machine can be sold to a scrap dealer for $8,000. Both machines will have a salvage value of zero if operated for the remainder of their useful lives. Instructions Determine whether the company should purchase the new machine.

Abel Company produces three versions of baseball bats: wood, aluminum, and hard rubber. A condensed segmented income statement for a recent period follows: Assume all of the fixed expenses for the hard rubber line are avoidable. What will be total net income if the line is dropped?

Accounting contributes to management's decision-making process through internal reports that review the actual impact of the decision.

In a make-or-buy decision, opportunity costs are

A decision whether to continue to make a product or buy it externally, depends on the external price and the amount of variable and fixed costs that can be eliminated assuming no alternative uses of resources.

Talbot Company expects income of $2,000 per year over the life of an investment that will cost $25,000. The calculation of the accounting rate of return is .16. The rate of return indicates that

A company is considering eliminating a product line. The fixed costs currently allocated to the product line will be allocated to other product lines upon discontinuance. If the product line is discontinued,

Mercer has three product lines in its retail stores: books, videos, and music. Results of the fourth quarter are presented below: The allocated fixed costs are unavoidable. Demand of individual products are not affected by changes in other product lines. Instructions What will happen to profits if Mercer discontinues the Books product line?