Eagle Company is considering the purchase of an asset for $100,000.It is expected to produce the following net cash flows.The cash flows occur evenly throughout each year.Compute the break-even time (BET)period for this investment.(Round to two decimal places.) \[\begin{array} { | l | r | r | } \hline & \begin{array} { c } \text { Annual Net } \\ \text { Cash Flaws } \end{array} & \begin{array} { c } \text { Present Value } \\ \text { of 1 at 10\% } \end{array} \\ \hline \text { Year 0 } & & 1.0000 \\ \hline \text { Year 1 } & \$ 40,000 & .9091 \\ \hline \text { Year 2 } & \$ 40,000 & .8264 \\ \hline \text { Year 3 } & \$ 35,000 & .7513 \\ \hline \text { Year 4 } & \$ 35,000 & .6830 \\ \hline \text { Year 5 } & \$ 30,000 & .6209 \\ \hline \end{array}\]

A) 2.85 years. B) 2.57 years. C) 3.17 years. D) 2.98 years. E) 3.62 years. A) 2.85 years. B) 2.57 years. C) 3.17 years. D) 2.98 years. E) 3.62 years.

Fleming Company had the following results of operations for the past year: \[\begin{array} { l r } \text { sales } ( 10,000 \text { units at } \$ 6.80 ) & \$ 68,000 \\ \text { Materials and direct labor } & ( 20,000 ) \\ \text { Overhead (40\% variable) .......................... } & ( 10,000 ) \\ \text { Selling and adruinistrative expenses (all fixed) } & ( 6,000 ) \\ \text { Operating income } & \$ 32,000 \end{array}\] A foreign company (whose sales will not affect Fleming's regular sales)offers to buy 2,000 units at $5.00 per unit.In addition to variable manufacturing costs,there would be shipping costs of $1,200 in total on these units.Should Fleming take this order? Explain.

@#IMG-DLM& Thus,since operating income w

Exam 25: Capital Budgeting and Managerial Decisions

Marsden manufactures a cat food product called Special Export.Marsden currently has 10,000 bags of Special Export on hand.The variable production costs per bag are $1.80 and total fixed costs are $10,000.The cat food can be sold as it is for $9.00 per bag or be processed further into Prime Cat Food and Feline Surprise at an additional $2,000 cost.The additional processing will yield 10,000 bags of Prime Cat Food and 3,000 bags of Feline Surprise,which can be sold for $8 and $6 per bag,respectively.If Special Export is processed further into Prime Cat Food and Feline Surprise,the total gross profit would be:

(Multiple Choice)

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Question 81

A new manufacturing machine is expected to cost $286,000,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 accounting rate of return for the investment.

(Multiple Choice)

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Question 82

A special order of goods or services should always be accepted when the incremental revenue exceeds the incremental costs.

(True/False)

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Question 83

The minimum acceptable rate of return on an investment is called the _________________.

(Short Answer)

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Question 84

Incremental costs should be considered in a make or buy decision.

(True/False)

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Question 85

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.

(True/False)

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Question 86

Textel is thinking about having one of its products manufactured by a subcontractor. Currently,the cost of manufacturing 1,000 units follows: Direct materal..........................................545,000 Direct labor.................................................30,000 Factory overtead ( $30 \%$ is variable)............98,000 If Textel can buy 1,000 units from a subcontractor for $100,000,it should:

(Multiple Choice)

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Question 87

Good management accounting indicates that projects be evaluated using relevant data.In choosing among alternatives,what factors (considerations)are relevant?

(Essay)

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Question 88

When computing payback period,the year in which a capital investment is made is year 1.

(True/False)

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Question 89

After-tax net income divided by the annual average investment in an investment,is the:

(Multiple Choice)

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Question 90

Eagle Company is considering the purchase of an asset for $100,000.It is expected to produce the following net cash flows.The cash flows occur evenly throughout each year.Compute the break-even time (BET)period for this investment.(Round to two decimal places.) Annual Net Cash Flaws Present Value of 1 at 10\% Year 0 1.0000 Year 1 \ 40,000 .9091 Year 2 \ 40,000 .8264 Year 3 \ 35,000 .7513 Year 4 \ 35,000 .6830 Year 5 \ 30,000 .6209

(Multiple Choice)

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Question 91

Fleming Company had the following results of operations for the past year: sales (10,000 units at \ 6.80) \ 68,000 Materials and direct labor (20,000) Overhead (40\% variable) .......................... (10,000) Selling and adruinistrative expenses (all fixed) (6,000) Operating income \ 32,000 A foreign company (whose sales will not affect Fleming's regular sales)offers to buy 2,000 units at $5.00 per unit.In addition to variable manufacturing costs,there would be shipping costs of $1,200 in total on these units.Should Fleming take this order? Explain.

(Essay)

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Question 92

A company must decide between scrapping or rebuilding units that do not pass inspection.The company has 15,000 such units that cost $6 per unit to manufacture.The units were built to satisfy a special order,which must still be satisfied if the defective units are scrapped.The units can be sold as scrap for $2.50 each or they can be reworked for $4.50 each and sold for the full price of $9.00 each.If the units are sold as scrap,the company will have to build 15,000 replacement units and sell them at the full price. Required: (1)What is the net return from selling the units as scrap? (2)What is the net return from reworking and selling the units? (3)Should the company sell the units as scrap or rework them?

(Essay)

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Question 93

In using the internal rate of return method,management must consider a hurdle rate in making its decisions.What is a hurdle rate? What factors does management have to consider in selecting a hurdle rate?

(Essay)

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Question 94

Significant sunk costs are relevant to decisions about the future.

(True/False)

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Question 95

A company is evaluating the purchase of a machine for $900,000 with a six-year useful life and no salvage value.The company uses straight-line depreciation and it assumes that the annual net cash flow from using the machine will be received uniformly throughout each year.In calculating the accounting rate of return,what is the company's average investment?

(Short Answer)

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Question 96

The payback method of evaluating an investment fails to consider how long the investment will generate cash inflows beyond the payback period.

(True/False)

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Question 97

A company is considering purchasing a machine for $75,000.The machine is expected to generate a net after-tax income of $11,250 per year.Depreciation expense would be $7,500.What is the payback period for this machine?

(Essay)

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Question 98

Presented below are terms preceded by letters a through f and followed by a list of definitions 1 through 6.Match the letter of the terms with the definitions.Use the space provided preceding each definition.

An additional cost incurred only if a particular action is taken.

Out-of-pocket cost

The potential benefits of one alternative that are lost by choosing an alternative course of action.

Opportunity cost

A cost that cannot be avoided or changed in any way because it arises from past decision; irrelevant to current and future decisions.

Sunk cost

Correct Answer:

Verified

An additional cost incurred only if a particular action is taken.

The potential benefits of one alternative that are lost by choosing an alternative course of action.

A cost that cannot be avoided or changed in any way because it arises from past decision; irrelevant to current and future decisions.

A cost that requires a current outlay of cash.

An estimate of an asset's value to the company; calculated by discounting the future cash flows from the investment at a satisfactory rate and then subtracting the initial cost of the investment.

A rate used to evaluate the acceptability of an investment; equals the after-tax periodic income divided by the average investment in the asset.

(Matching)

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Question 99

The ____________________ is computed by dividing a project's after-tax net income by the average amount invested in it.

(Short Answer)

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Question 100

Showing 81 - 100 of 131

A new manufacturing machine is expected to cost $286,000,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 accounting rate of return for the investment.

A special order of goods or services should always be accepted when the incremental revenue exceeds the incremental costs.

The minimum acceptable rate of return on an investment is called the _________________.

Incremental costs should be considered in a make or buy decision.

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.

Good management accounting indicates that projects be evaluated using relevant data.In choosing among alternatives,what factors (considerations)are relevant?

When computing payback period,the year in which a capital investment is made is year 1.

After-tax net income divided by the annual average investment in an investment,is the:

In using the internal rate of return method,management must consider a hurdle rate in making its decisions.What is a hurdle rate? What factors does management have to consider in selecting a hurdle rate?

Significant sunk costs are relevant to decisions about the future.

The payback method of evaluating an investment fails to consider how long the investment will generate cash inflows beyond the payback period.

A company is considering purchasing a machine for $75,000.The machine is expected to generate a net after-tax income of $11,250 per year.Depreciation expense would be $7,500.What is the payback period for this machine?

The ____________________ is computed by dividing a project's after-tax net income by the average amount invested in it.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

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 Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Time Value of Money B

Activity-Based Costing C

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