Question 1

A(n)_____________________ is the potential benefit lost by taking a specific action when two or more alternative choices are available.

Accepted Answer

The answer of A(n)_____________________ is the potential benefit lost by...

Question 2

The following present value factors are provided for use in this problem.   Cliff Co.wants to purchase a machine for $40,000,but needs to earn an 8% return.The expected year-end net cash flows are $12,000 in each of the first three years,and $16,000 in the fourth year.What is the machine's net present value (round to the nearest whole dollar)?

Accepted Answer

A) $(9,075). 
B) $2,685. 
C) $42,685. 
D) $(28,240). 
E) $52,000. 
A) $(9,075). 
B) $2,685. 
C) $42,685. 
D) $(28,240). 
E) $52,000.

Question 3

A company produces three different products that all require processing on the same machines.There are only 27,000 machine hours available in each year.Production information for each product is:   Required:
(1)Determine the preferred sales mix if there are no market constraints on any of the products.
(2)Determine the preferred sales mix if the demand is limited to 5,000 units for each product.
(3)Determine the preferred sales mix if the demand is limited to 3,000 units for each product.

Accepted Answer

@#IMG-DLM& In general,the company should produce P

Question 4

Bannister Co.is thinking about having one of its products manufactured by a subcontractor. Currently,the cost of manufacturing 1,000 units follows:   If Bannister can buy 1,000 units from a subcontractor for $100,000,it should:

Accepted Answer

A) Make the product because current factory overhead is less than $100,000. 
B) Make the product because the cost of direct material plus direct labor of manufacturing is less than $100,000. 
C) Buy the product because the total incremental costs of manufacturing are greater than $100,000. 
D) Buy the product because total fixed and variable manufacturing costs are greater than $100,000. 
E) Make the product because factory overhead is a sunk cost. 
A) Make the product because current factory overhead is less than $100,000. 
B) Make the product because the cost of direct material plus direct labor of manufacturing is less than $100,000. 
C) Buy the product because the total incremental costs of manufacturing are greater than $100,000. 
D) Buy the product because total fixed and variable manufacturing costs are greater than $100,000. 
E) Make the product because factory overhead is a sunk cost.

Question 5

The time value of money is considered when calculating the payback period of an investment.

Accepted Answer

A) True 
 B)False

Question 6

The minimum acceptable rate of return on an investment,often the company's cost of capital,is called the _________________.

Accepted Answer

The answer of The minimum acceptable rate of return on...

Question 7

A company manufactures two products.Each unit of product X requires 10 machine hours and each unit of product Y requires 4 machine hours.The company's productive capacity is limited to 180,000 machine hours.Each unit of product X sells for $15 and has variable costs of $7.Each unit of product Y sells for $8 and has variable costs of $3.If the company can sell all that it produces of both products,what should the sales mix be?

Accepted Answer

@#IMG-DLM& Since the contribution margin

Question 8

Generalware,Inc.sells a single product and reports the following results from sales of 100,000 units:   A foreign company wants to purchase 15,000 units.However,they are willing to pay only $36 per unit for this one-time order.They also agree to pay all freight costs.To fill the order,Generalware will incur normal production costs.Total fixed overhead will have to be increased by $60,000 to pay for equipment rentals and insurance.No additional administrative costs (variable or fixed)will be incurred in association with this special order.
Required:
(1)Should Generalware accept the order if it does not affect regular sales? Explain.
(2)Assume that Generalware can accept the special order only by giving up 5,000 units of its normal sales.Should the company accept the special order under these circumstances?

Accepted Answer

@#IMG-DLM& Therefore,Generalware should

Question 9

A company buys a machine for $60,000 that has an expected life of 9 years and no salvage value.The company anticipates a yearly net income of $2,850 after taxes of 30%,with the cash flows to be received evenly throughout each year.What is the accounting rate of return?

Accepted Answer

A) 2.85%. 
B) 4.75%. 
C) 6.65%. 
D) 9.50%. 
E) 42.75%. 
A) 2.85%. 
B) 4.75%. 
C) 6.65%. 
D) 9.50%. 
E) 42.75%.

Question 10

Neither the payback period nor the accounting rate of return methods of evaluating investments considers the time value of money.

Accepted Answer

A) True 
 B)False

Question 11

Granfield Company is considering eliminating its backpack division,which reported an operating loss for the recent year of $42,000.The division sales for the year were $960,000 and the variable costs were $475,000.The fixed costs of the division were $527,000.If the backpack division is dropped,40% of the fixed costs allocated to that division could be eliminated.The impact on Granfield's operating income for eliminating this business segment would be:

Accepted Answer

A) $485,000 decrease 
B) $210,800 increase 
C) $274,200 decrease 
D) $485,000 increase 
E) $274,200 increase 
A) $485,000 decrease 
B) $210,800 increase 
C) $274,200 decrease 
D) $485,000 increase 
E) $274,200 increase

Question 12

Minor Electric has received a special one-time order for 1,500 light fixtures (units)at $5 per unit.Minor currently produces and sells 7,500 units at $6.00 each.This level represents 75% of its capacity.Production costs for these units are $4.50 per unit,which includes $3.00 variable cost and $1.50 fixed cost.To produce the special order,a new machine needs to be purchased at a cost of $1,000 with a zero salvage value.Management expects no other changes in costs as a result of the additional production.Should the company accept the special order?

Accepted Answer

A) No,because additional production would exceed capacity. 
B) No,because incremental costs exceed incremental revenue. 
C) Yes,because incremental revenue exceeds incremental costs. 
D) Yes,because incremental costs exceed incremental revenues. 
E) No,because the incremental revenue is too low. 
A) No,because additional production would exceed capacity. 
B) No,because incremental costs exceed incremental revenue. 
C) Yes,because incremental revenue exceeds incremental costs. 
D) Yes,because incremental costs exceed incremental revenues. 
E) No,because the incremental revenue is too low.

Question 13

Briefly describe the time value of money.Why is the time value of money important in capital budgeting?

Accepted Answer

The time value of money means that,typic

Question 14

A company is planning to purchase a machine that will cost $24,000,have a six-year life,and be depreciated over a three-year period with no salvage value.The company expects to sell the machine's output of 3,000 units evenly throughout each year.A projected income statement for each year of the asset's life appears below.What is the payback period for this machine?

Accepted Answer

A) 24 years. 
B) 12 years. 
C) 6 years. 
D) 4 years. 
E) 1 year. 
A) 24 years. 
B) 12 years. 
C) 6 years. 
D) 4 years. 
E) 1 year.

Question 15

A new manufacturing machine is expected to cost $278,000,have an eight-year life,and a $30,000 salvage value.The machine will yield an annual incremental after-tax income of $35,000 after deducting the straight-line depreciation.Compute the payback period for the purchase.

Accepted Answer

A) 8.7 years. 
B) 3.8 years. 
C) 4.2 years. 
D) 7.3 years. 
E) 5.4 years. 
A) 8.7 years. 
B) 3.8 years. 
C) 4.2 years. 
D) 7.3 years. 
E) 5.4 years.

Question 16

The break-even time (BET)method is a variation of the:

Accepted Answer

A) Payback method. 
B) Internal rate of return method. 
C) Accounting rate of return method. 
D) Net present value method. 
E) Present value method. 
A) Payback method. 
B) Internal rate of return method. 
C) Accounting rate of return method. 
D) Net present value method. 
E) Present value method.

Question 17

The net present value decision rule is: When an asset's expected cash flows yield a positive net present value when discounted at the required rate of return,the asset should be acquired.

Accepted Answer

A) True 
 B)False

Question 18

Part of the decision to accept additional business should be based on a comparison of the incremental (differential)costs of the added production with the additional revenues to be received.

Accepted Answer

A) True 
 B)False

Question 19

An advantage of the break-even time (BET)method over the payback period method is that it recognizes the time value of money.

Accepted Answer

A) True 
 B)False

Question 20

A shorter payback period reduces the company's ability to respond to unanticipated changes and increases the risk of having to keep an unprofitable investment.

Accepted Answer

A) True 
 B)False

A(n)_____________________ is the potential benefit lost by taking a specific action when two or more alternative choices are available.

Bannister Co.is thinking about having one of its products manufactured by a subcontractor. Currently,the cost of manufacturing 1,000 units follows: If Bannister can buy 1,000 units from a subcontractor for $100,000,it should:

The time value of money is considered when calculating the payback period of an investment.

The minimum acceptable rate of return on an investment,often the company's cost of capital,is called the _________________.

A company buys a machine for $60,000 that has an expected life of 9 years and no salvage value.The company anticipates a yearly net income of $2,850 after taxes of 30%,with the cash flows to be received evenly throughout each year.What is the accounting rate of return?

Neither the payback period nor the accounting rate of return methods of evaluating investments considers the time value of money.

Briefly describe the time value of money.Why is the time value of money important in capital budgeting?

A new manufacturing machine is expected to cost $278,000,have an eight-year life,and a $30,000 salvage value.The machine will yield an annual incremental after-tax income of $35,000 after deducting the straight-line depreciation.Compute the payback period for the purchase.

The break-even time (BET)method is a variation of the:

The net present value decision rule is: When an asset's expected cash flows yield a positive net present value when discounted at the required rate of return,the asset should be acquired.

Part of the decision to accept additional business should be based on a comparison of the incremental (differential)costs of the added production with the additional revenues to be received.

An advantage of the break-even time (BET)method over the payback period method is that it recognizes the time value of money.

A shorter payback period reduces the company's ability to respond to unanticipated changes and increases the risk of having to keep an unprofitable investment.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resources, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Appendix B: Time Value of Money

Appendix C: Activity-Based Costing

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Exam 25: Capital Budgeting and Managerial Decisions

A(n)_____________________ is the potential benefit lost by taking a specific action when two or more alternative choices are available.

Bannister Co.is thinking about having one of its products manufactured by a subcontractor. Currently,the cost of manufacturing 1,000 units follows: If Bannister can buy 1,000 units from a subcontractor for $100,000,it should:

The time value of money is considered when calculating the payback period of an investment.

The minimum acceptable rate of return on an investment,often the company's cost of capital,is called the _________________.

A company buys a machine for $60,000 that has an expected life of 9 years and no salvage value.The company anticipates a yearly net income of $2,850 after taxes of 30%,with the cash flows to be received evenly throughout each year.What is the accounting rate of return?

Neither the payback period nor the accounting rate of return methods of evaluating investments considers the time value of money.

Briefly describe the time value of money.Why is the time value of money important in capital budgeting?

A new manufacturing machine is expected to cost $278,000,have an eight-year life,and a $30,000 salvage value.The machine will yield an annual incremental after-tax income of $35,000 after deducting the straight-line depreciation.Compute the payback period for the purchase.

The break-even time (BET)method is a variation of the:

The net present value decision rule is: When an asset's expected cash flows yield a positive net present value when discounted at the required rate of return,the asset should be acquired.

Part of the decision to accept additional business should be based on a comparison of the incremental (differential)costs of the added production with the additional revenues to be received.

An advantage of the break-even time (BET)method over the payback period method is that it recognizes the time value of money.

A shorter payback period reduces the company's ability to respond to unanticipated changes and increases the risk of having to keep an unprofitable investment.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resources, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Appendix B: Time Value of Money

Appendix C: Activity-Based Costing

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