Exam 26: Standard Costs and Balanced Scorecard

Paola Farms, Inc. produces a crop of chickens at a total cost of $66,000. The production generates 60,000 chickens which can be sold for $1 each to a slaughtering company, or the chickens can be slaughtered in house and then sold for $2.25 each. It costs $55,000 more to turn the annual chicken crop into chicken meat. Instructions If Paola Farms slaughters the chickens, determine how much incremental profit or loss it would report. What should Paola Farms do?

The process used to identify the financial data that change under alternative courses of action is called __________________ analysis.

The conceptually superior approach to capital budgeting is

The process of making capital expenditure decisions in business is called ___________.

Ruth Company produces 1,000 units of a necessary component with the following costs: Ruth Company could avoid $3,000 in fixed overhead costs if it acquires the components 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 accept to acquire the 1,000 units externally?

In using the net present value approach, a project is acceptable if the project's net present value is ____________ or _______________.

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.

Knowledge of the ______________________ is necessary when discounting future cash flows under the net present value approach.

Agler Corporation currently manufactures a subassembly for its main product. The costs per unit are as follows: Funkhouser Company has contacted Agler with an offer to sell it 5,000 of the subassemblies for $18 each. If Agler makes the subassemblies, $3 of the fixed overhead per unit will be allocated to other products. Instructions Should Agler make or buy the subassemblies? Explain your answer.

Fornelli, Inc. can produce 100 units of a component part with the following costs: If Fornelli, Inc. can purchase the component part externally for $88,000 and only $8,000 of the fixed costs can be avoided, what is the correct make-or-buy decision?

Crigui Music produces 60,000 CDs on which to record music. The CDs have the following costs: Crigui could avoid $4,000 in fixed overhead costs if it acquires the CDs externally. If cost minimization is the major consideration and the company would prefer to buy the 60,000 units externally, what is the maximum external price that Crigui would expect to pay for the units?

Wesley Medical Center is considering purchasing an ultrasound machine for $1,135,000. The machine has a 10-year life and an estimated salvage value of $40,000. Installation costs and freight charges will be $24,200 and $800, respectively. The Center uses straight-line depreci-ation. 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.

Which decision will involve no incremental revenues?

Cepeda Manufacturing Company is considering three new projects, each requiring an equipment investment of $20,000. Each project will last for 3 years and produce the following cash inflows. The equipment's salvage value is zero. Cepeda uses straight-line depreciation. Cepeda will not accept any project with a payback period over 2 years. Cepeda's minimum required rate of return is 12%. Instructions (a) Compute each project's payback period, indicating the most desirable project and the least desirable project using this method. (Round to two decimals.) (b) Compute the net present value of each project. Does your evaluation change? (Round to nearest dollar.)

If a company's required minimum rate of return is 10%, and in using the net present value method, a project's net present value is zero, this indicates that the

Garza Company is considering buying equipment for $240,000 with a useful life of five years and an estimated salvage value of $12,000. If annual expected income is $21,000, the denominator in computing the annual rate of return is

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 net present value for Project Gray is

An investment costing $90,000 is being contemplated by Linn Co. The investment will have a life of 8 years with no salvage value and will produce annual cash flows of $16,870. Instructions Compute the approximate internal rate of return for this investment. (Table C-2 is needed)

In incremental analysis,

Elmdale Company has a machine that affixes labels to bottles. The machine has a book value of $60,000 and a remaining useful life of 3 years and no salvage value. A new, more efficient machine is available at a cost of $225,000 that will have a 5-year useful life with no salvage value. The new machine will lower annual variable production costs from $400,000 to $310,000. Instructions Prepare an analysis showing whether the old machine should be retained or replaced.