Exam 26: Standard Costs and Balanced Scorecard

Incremental analysis would be appropriate for

In using the internal rate of return method, the internal rate of return factor was 4.0 and the equal annual cash inflows were $40,000. The initial investment in the project must have been

Incremental analysis is synonymous with

Felter Company produced and sold 50,000 units of product and is operating at 70% of plant capacity. Unit information about its product is as follows: The company received a proposal from a foreign company to buy 15,000 units of Felter Company's product for $50 per unit. This is a one-time only order and acceptance of this proposal will not affect the company's regular sales. The president of Felter Company is reluctant to accept the proposal because he is concerned that the company will lose money on the special order. Instructions Prepare a schedule reflecting an incremental analysis of this proposal and indicate the effect the acceptance of this order might have on the company's income.

A major limitation of the annual rate of return approach is that it does not consider the _______________ of money.

In incremental analysis, total variable costs will always change under alternative courses of action, and total fixed costs will always remain constant.

Trump Forest Corporation operates two divisions, the Timber Division and the Consumer Division. The Timber Division manufactures and sells logs to paper manufacturers. The Consumer Division operates retail lumber mills which sell a variety of products in the do-it-yourself homeowner market. The company is considering disposing of the Consumer Division since it has been consistently unprofitable for a number of years. The income statements for the two divisions for the year ended December 31, 2010 are presented below: In the Consumer Division, 70% of the cost of goods sold are variable costs and 25% of selling and administrative expenses are variable costs. The management of the company feels it can save $45,000 of fixed cost of goods sold and $60,000 of fixed selling expenses if it discontinues operation of the Consumer Division. Instructions (a) Determine whether the company should discontinue operating the Consumer Division. (b) If the company had discontinued the division for 2010, determine what net income would have been.

Kasten, Inc. budgeted 10,000 widgets for production during 2010. Kasten has capacity to produce 12,000 units. Fixed factory overhead is allocated to production. The following estimated costs were provided: Instructions Answer each of the following independent questions: 1. Kasten received an order for 1,000 units from a new customer in a country in which Kasten has never done business. This customer has offered $43 per widget. Should Kasten accept the order? 2. Kasten received an offer from another company to manufacture the same quality widgets for $39. Should Kasten let someone else manufacture all 10,000 widgets and focus only on distribution?

Janssen Company has old inventory on hand that cost $18,000. Its scrap value is $24,000. The inventory could be sold for $60,000 if manufactured further at an additional cost of $18,000. What should Janssen do?

The rate of return that management expects to pay on all borrowed and equity funds is the

Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: If the old machine is replaced, it can be sold for $20,000. The net advantage (disadvantage) of replacing the old machine is

Ruiz Company's contribution margin is $4 per unit for Product A and $5 for Product B. Product A requires 2 machine hours and Product B requires 4 machine hours. How much is the contribution margin per unit of limited resource for each product?

Marcus Company gathered the following data about the three products that it produces: Which of the products should not be processed further?

A company decided to replace an old machine with a new machine. Which of the following is considered a relevant cost?

Kuhn Bicycle Company has been manufacturing its own seats for its bicycles. The company is currently operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 60% of direct labor cost. The direct materials and direct labor cost per unit to make the bicycle seats are $8.00 and $9.00, respectively. Normal production is 50,000 bicycles per year. A supplier offers to make the bicycle seats at a price of $20 each. If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $30,000 of fixed manufacturing overhead currently being charged to the bicycle seats will have to be absorbed by other products. Instructions (a) Prepare the incremental analysis for the decision to make or buy the bicycle seats. (b) Should Kuhn Bicycle Company buy the seats from the outside supplier? Justify your answer.

Net present value is the difference between the

Martin Company incurred the following costs for 50,000 units: Variable costs $180,000 Fixed costs 240,000 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 break even on the order, what should the unit sales price be?

Mussina Company had an investment which cost $260,000 and had a salvage value at the end of its useful life of zero. If Mussina's expected annual net income is $15,000, the annual rate of return is:

A company is considering purchasing factory equipment that costs $320,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the equipment is purchased, annual revenues are expected to be $90,000 and annual operating expenses exclusive of depreciation expense are expected to be $38,000. The straight-line method of depreciation would be used. The cash payback period on the equipment is

Opportunity cost must be considered in decisions involving