Exam 26: Standard Costs and Balanced Scorecard

If the payback period for a project is greater than its economic life, the

Which of the following is not a true statement?

The cash payback capital budgeting technique is a quick way to calculate a project's net present value.

Capital budgeting is the process

Which of the following is not relevant information in a decision whether old equipment presently being used should be replaced by new equipment?

Ruth Company produces 1,000 units of a necessary component with the following costs: None of Ruth Company's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $8,000 if the components were acquired externally. If cost minimization is the major consideration and the company would prefer to buy the components, what is the maximum external price that Ruth Company would be willing to accept to acquire the 1,000 units externally?

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?

A company's cost of capital refers to the

Eddy Company is starting business and is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $80 and Eddy Company would sell it for $180. The cost to assemble the product is estimated at $36 per unit and Eddy Company believes the market would support a price of $232 on the assembled unit. What is the correct decision using the sell or process further decision rule?

When a company has limited resources to manufacture products, it should manufacture those products which have the highest contribution margin per unit of limited resource.

Which of the following stages of the management decision-making process is improperly sequenced?

Larkin Company produces golf discs which it normally sells to retailers for $6 each. The cost of manufacturing 25,000 golf discs is: Innova also incurs 5% sales commission ($0.30) on each disc sold. Rudd Corporation offers Innova $4.25 per disc for 5,000 discs. Rudd would sell the discs under its own brand name in foreign markets not yet served by Larkin. If Larkin accepts the offer, its fixed overhead will increase from $50,000 to $55,000 due to the purchase of a new imprinting machine. No sales commission will result from the special order. Instructions (a) Prepare an incremental analysis for the special order. (b) Should Innova accept the special order? Why or why not?

A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $16 and takes two machine hours to make and Product B has a unit contribution margin of $30 and takes three machine hours to make. If there are 1,000 machine hours available to manufacture a product, income will be

If a company has excess capacity and present markets will not be affected, it would be profitable to accept an order at a special unit price even though the price is less than the unit variable cost to manufacture the item.

Milwaukee, Inc. has three divisions: Bud, Wise, and Er. The results of May, 2010 are presented below. All of the allocated costs will continue even if a division is discontinued. Milwaukee allocates indirect fixed costs based on the number of units to be sold. Since the Wise division has a net loss, Milwaukee feels that it should be discontinued. Milwaukee feels if the division is closed, that sales at the Bud division will increase by 10%, and that sales at the Er division will stay the same. Instructions (a) Prepare an analysis showing the effect of discontinuing the Wise division. (b) Should Milwaukee close the Wise division? Briefly indicate why or why not.

Martin Company incurred the following costs for 50,000 units: Martin has received a special order from a foreign company for 5,000 units. There is sufficient capacity to fill the order without jeopardizing regular sales. Filling the order will require spending an additional $8,500 for shipping. If Martin wants to earn $8,000 on the order, what should the unit price be?

It is better not to replace old equipment if it is not fully depreciated.

Book value of old equipment is considered to be a

Lightle Co. is considering investing in new equipment that will cost $900,000 with a 10-year useful life. The new equipment is expected to produce annual net income of $30,000 over its useful life. Depreciation expense, using the straight-line rate, is $90,000 per year. Instructions Compute the cash payback period.

It costs Garner Company $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35. A foreign wholesaler offers to purchase 2,000 scales at $15 each. Garner would incur special shipping costs of $1 per scale if the order were accepted. Garner has sufficient unused capacity to produce the 2,000 scales. If the special order is accepted, what will be the effect on net income?