Exam 26: Standard Costs and Balanced Scorecard

In deciding on the future status of an unprofitable segment, management should recognize that net income could decrease by eliminating the unprofitable segment.

Decision-making involves choosing among alternative courses of action.

When using the payback method, payback is expressed in terms of

A company is considering the following alternatives: Which of the following are relevant in choosing between the alternatives?

In a retain or replace equipment decision, trade-in allowance available on old equipment

If a company has only a certain number of machine hours available for production, it is generally more profitable to produce and sell the product with the highest unit contribution margin.

Gantner Company is considering a capital investment of $200,000 in additional productive facilities. The new machinery is expected to have a useful life of 5 years with no salvage value. Depreciation is by the straight-line method. During the life of the investment, annual net income and cash inflows are expected to be $18,000 and $58,000, respectively. Gantner has a 12% cost of capital rate, which is the minimum acceptable rate of return on the investment. Instructions (Round to two decimals.) (a) Compute (1) the annual rate of return and (2) the cash payback period on the proposed capital expenditure. (b) Using the discounted cash flow technique, compute the net present value.

The annual rate of return technique requires dividing a project's annual cash inflows by the economic life of the project.

In the Rossetto Company, contribution margin per unit is $12 for Product X and $20 for Product Y. Product X requires 4 machine hours and Product Y requires 8 machine hours. What is the contribution margin per unit of limited resource for each product?

Hughes Company manufactures and sells two products. Relevant per unit data concerning each product are given below: Instructions (a) Compute the contribution margin per unit of the limited resource for each product. (b) If 1,000 additional machine hours are available, which product should be manufactured? (c) Prepare an analysis showing the total contribution margin if the additional hours are (1) Divided equally among the products. (2) Allocated entirely to the product identified in (b) above.

Internal reports that review the actual impact of decisions are prepared by

A company has a process that results in 15,000 pounds of Product A that can be sold for $8 per pound. An alternative would be to process Product A further at a cost of $100,000 and then sell it for $14 per pound. Should management sell Product A now or should Product A be processed further and then sold? What is the effect of the action?

A recent accounting graduate from Marvel State University evaluated the operating perform-ance of Fanning Company's four divisions. The following presentation was made to Fanning's Board of Directors. During the presentation, the accountant made the recommendation to eliminate the Southern Division stating that total net income would increase by $60,000. (See analysis below.) For the other divisions, cost of goods sold is 80% variable and operating expenses are 70% variable. The cost of goods sold for the Southern Division is 35% fixed, and its operating expenses are 75% fixed. If the division is eliminated, only $10,000 of the fixed operating costs will be eliminated. Instructions Do you concur with the new accountant's recommendation? Present a schedule to support your answer.

The opportunity cost of an alternate course of action that is relevant to a make-or-buy decision is

Which of the following would generally not affect a make-or-buy decision?

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

The ______________ value of old equipment is irrelevant in a decision to replace that equipment and is often referred to as a _____________ cost.

The elimination of an unprofitable product line may adversely affect the remaining product lines.

Martinez Company has money available for investment and is considering two projects each costing $70,000. 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.)

Ecker, Inc. produces milk at a total cost of $66,000. The production generates 60,000 gallons of milk which can be sold for $1 per gallon to a pasteurization company, or the milk can be processed further into ice cream and then sold for $2.50 per gallon. It costs $75,000 more to turn the annual milk supply into ice cream. Instructions If Ecker processes the milk into ice cream, how much is the incremental profit or loss? Should Ecker process the milk into ice cream or sell it as is?