Question 1

Capital investment analysis is a decision process for the purchase of capital facilities,such as buildings and equipment.

Accepted Answer

A) True 
 B)False

Question 2

Lopez Co.is interested in purchasing equipment that would improve its operational efficiency.The cost of the equipment is $400,000 with an estimated residual value of $30,000 and a useful life of ten years.The equipment is expected to fetch cash inflows of $60,000 a year.The company's minimum rate of return is 8 percent.The present value of $1 for ten years at 8 percent is 0.463,and the present value of an annuity of $1 at 8 percent and ten years is 6.710. 
-Using the above information for Lopez,the net present value of the project is

Accepted Answer

A) $402,600. 
B) $13,890. 
C) $200,000. 
D) $16,490. 
A) $402,600. 
B) $13,890. 
C) $200,000. 
D) $16,490.

Question 3

Capital investment analysis can be applied in case of expensive and long-term projects.

Accepted Answer

A) True 
 B)False

Question 4

Products Square,Rect,Tri,and Quatro have contribution margins of $5,$8,$6,and $4,respectively,and require 3.5,2.5,2,and 3 machine hours per unit,respectively.Assuming that all units produced could be sold and that total machine hours per month are limited,on which product should the company concentrate its efforts?

Accepted Answer

A) Square 
B) Rect 
C) Tri 
D) Quatro 
A) Square 
B) Rect 
C) Tri 
D) Quatro

Question 5

All short-run decisions made by managers will affect an organization in both short run and long run.

Accepted Answer

A) True 
 B)False

Question 6

The costs incurred beyond the split-off point are

Accepted Answer

A) split-off point costs. 
B) incremental costs. 
C) joint product costs. 
D) period costs. 
A) split-off point costs. 
B) incremental costs. 
C) joint product costs. 
D) period costs.

Question 7

Which of the following is true of segment profitability analysis?

Accepted Answer

A) It suggests eliminating all segments having positive margins. 
B) It includes the preparation of a segmented income statement. 
C) It traces common fixed costs to individual segments. 
D) It treats common fixed costs as avoidable costs. 
A) It suggests eliminating all segments having positive margins. 
B) It includes the preparation of a segmented income statement. 
C) It traces common fixed costs to individual segments. 
D) It treats common fixed costs as avoidable costs.

Question 8

The purpose of establishing a desired rate of return on investment is to set a point above which the best alternative will be considered acceptable.

Accepted Answer

A) True 
 B)False

Question 9

Depreciation expense influences cash flows because it directly affects

Accepted Answer

A) the amount of income taxes paid by the company. 
B) cash received from revenues during the current period. 
C) the carrying value of the asset. 
D) revenues earned by the equipment. 
A) the amount of income taxes paid by the company. 
B) cash received from revenues during the current period. 
C) the carrying value of the asset. 
D) revenues earned by the equipment.

Question 10

Special order decisions are the decisions about whether to accept or reject special orders at prices below the normal market prices.

Accepted Answer

A) True 
 B)False

Question 11

Outsourcing production or operating activities will help in improving the cash flow by reducing investment in physical assets.

Accepted Answer

A) True 
 B)False

Question 12

Outsourcing production help in reducing a company's investment in physical assets and human resources.

Accepted Answer

A) True 
 B)False

Question 13

The minimum rate of return on an investment is also known as a

Accepted Answer

A) hurdle rate. 
B) payback rate. 
C) net present value. 
D) profit margin. 
A) hurdle rate. 
B) payback rate. 
C) net present value. 
D) profit margin.

Question 14

Net present value analysis is based on a project's cash flows.

Accepted Answer

A) True 
 B)False

Question 15

Products Green,Red,and White have unit contribution margins of $6.50,$12,and $10,respectively,and require 2,4,and 3 direct labor hours per unit,respectively.If demand currently is far exceeding supply,on which product should the company concentrate its efforts?

Accepted Answer

A) Green 
B) Red 
C) White 
D) Either Green or Red 
A) Green 
B) Red 
C) White 
D) Either Green or Red

Question 16

Automating the existing production process comes under the purview of capital investment analysis.

Accepted Answer

A) True 
 B)False

Question 17

Taylor Inc.manufactures 12,000 units of a part used in its production to manufacture guitars.The annual production activities related to this part are as follows:   Best Guitars Inc.has offered to sell 12,000 units of the same part to Taylor for $22 per unit.If Taylor were to accept the offer,some of the facilities presently used to manufacture the part could be rented to a third party at an annual rental of $18,000.Moreover,$4 per unit of the fixed overhead applied to the part would be totally eliminated.
-What should Taylor's decision be,and what is the total cost savings that would result?

Accepted Answer

A) Make,$60,000 
B) Buy,$60,000 
C) Make,$78,000 
D) Buy,$78,000 
A) Make,$60,000 
B) Buy,$60,000 
C) Make,$78,000 
D) Buy,$78,000

Question 18

In choosing among alternatives,managers are guided by historical cost information.

Accepted Answer

A) True 
 B)False

Question 19

You are given the following present value factors at 8 percent,The Rogers Company's minimum desired rate of return:
  The Rogers Company is considering the replacement of a piece of equipment.The old machine has a carrying value of $800 and a remaining estimated life of five years,with no residual value at that time.Present residual value is $200.The new equipment will cost $1,200,including transportation and installation.It has an estimated life of five years,with no residual value then.Annual cash operating costs are $400 for the old machine and $150 for the new machine.(Round your answers to two decimal places. )
a.Compute the present value of the operating cash outflows for the old machine.
b.Compute the present value of the operating cash outflows for the new machine.
c.Compute the present value of the cash operating savings if the new machine is purchased.
d.What is the net present value of the replacement alternative?

Accepted Answer

a.Present value = $400 ´ 3.993 = $1,597.

Question 20

Information that is the same for all alternatives is considered relevant to the decision process.

Accepted Answer

A) True 
 B)False

Exam 25: Short-Run Decision Analysis and Capital Budgeting

Capital investment analysis is a decision process for the purchase of capital facilities,such as buildings and equipment.

Capital investment analysis can be applied in case of expensive and long-term projects.

All short-run decisions made by managers will affect an organization in both short run and long run.

The costs incurred beyond the split-off point are

Which of the following is true of segment profitability analysis?

The purpose of establishing a desired rate of return on investment is to set a point above which the best alternative will be considered acceptable.

Depreciation expense influences cash flows because it directly affects

Special order decisions are the decisions about whether to accept or reject special orders at prices below the normal market prices.

Outsourcing production or operating activities will help in improving the cash flow by reducing investment in physical assets.

Outsourcing production help in reducing a company's investment in physical assets and human resources.

The minimum rate of return on an investment is also known as a

Net present value analysis is based on a project's cash flows.

Products Green,Red,and White have unit contribution margins of $6.50,$12,and $10,respectively,and require 2,4,and 3 direct labor hours per unit,respectively.If demand currently is far exceeding supply,on which product should the company concentrate its efforts?

Automating the existing production process comes under the purview of capital investment analysis.

In choosing among alternatives,managers are guided by historical cost information.

Information that is the same for all alternatives is considered relevant to the decision process.

Accounting Principles and the Financial Statements

Analyzing and Recording Business Transactions

Adjusting the Accounts

Completing the Accounting Cycle

Foundations of Financial Reporting and the Classified Balance Sheet

Accounting for Merchandising Operations

Inventories

Cash and Internal Control

Receivables

Long -Term Assets

Current Liabilities and Fair Value Accounting

Accounting for Partnerships

Accounting for Corporations

Long Term Liabilities

The Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting and Cost Concepts

Costing Systems: Job Order Costing

Costing Systems Process Costing

Value-Based Systems: Activity-Based Costing and Lean Accounting

Cost-Volume-Profit Analysis

The Budgeting Process

Flexible Budgets and Performance Analysis

Standard Costing and Variance Analysis

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