1) An investment that costs $25,000 will produce annual cash flows of $5,000 for a period of 6 years. Further, the investment has an expected salvage value of $3,000. Given a desired rate of return of 12%, the investment will generate a (round your answer to the nearest whole dollar)
A. negative net present value of $2,923 B. positive net present value of $20,557 C. positive net present value of $1,520 D. negative net present value of $25,000
2) Mountain Brook Company is considering two investment opportunities whose cash flows are provided below:
Year Investment A Investment B
Year 0 ($15,000) ($9,000) Year 1 5,000 5,000 Year 2 5,000 4,000 Year 3 5,000 3,000 Year 4 4,000 1,000
The company’s hurdle rate is 12%. What is the present value index of Investment A?
A. 1.00 B. 0.97 C. 1.12 D. 1.01
3) Britannia Company has two investment opportunities. A cash flow schedule for the investments is provided below:
Year Investment A Investment B
Year 0 ($5,000) ($6,000) Year 1 2,000 3,000 Year 2 2,000 2,000 Year 3 2,000 2,000 Year 4 2,000 1,000
Assuming capital rationing is used, which of the following techniques would be most appropriate for choosing between Investment A and Investment B?
A. Payback technique B. Present value index C. Net present value technique D. None of these techniques apply
Which of the following statements concerning payback analysis is true? A. The payback method ignores the time value of money concept. B. The payback method and the unadjusted rate of return are different approaches that will consistently lead to the same conclusion. C. All of these are true. D. An investment with a longer payback is preferable to an investment with a shorter payback.
5) Select the incorrect statement concerning the internal rate of return (IRR) method of evaluating capital projects. A. A project whose IRR is less than the cost of capital should be rejected. B. The higher the IRR the better. C. The internal rate of return is that rate that makes the present value of the initial outlay equal to zero. D. If a project has a positive net present value then its IRR will exceed the hurdle rate.
6) The rate of return that equates the present value of cash inflows and outflows is the
A. internal rate of return. B. minimum rate of return. C. none of these. D. desired rate of return
7) An investment that costs $5,000 will produce annual cash flows of $2,000 for a period of 4 years. Given a desired rate of return of 10%, the investment will generate a present value index of A. 1.268. B. 0.789. C. 7.745. D. 2.500.
8) An investment that cost $48,000 provided annual cash inflows of $9,000 per year for six years. The desired rate of return is 10%. The actual return from the investment was
A. equal to the desired rate of return. B. less than the desired rate of return. C. the answer cannot be determined from the information provided. D. greater than the desired rate of return.
9) Which of the following is the approximate internal rate of return for an investment that costs $45,880 and provides a $4,000 annuity for 20 years?
A. 6% B. 5% C. 10% D. 8%
10) Yoplait Company employs material handling employees who move materials between production divisions at a labor cost of $160,000 a year. It is estimated that these employees move 75,000 pounds of material per year. If 6,000 pounds are moved in March, how much of the material handling cost should be assigned to products made in March?
A. $12,800 B. $12,000 C. $75,000 D. $26,666
11) Perrot Company has three divisions. For Perrot, a cost should be considered a direct cost if
A. it can be allocated to a division using an volume-based cost driver. B. it meets certain guidelines imposed by generally accepted accounting principles. C. it is a fixed cost. D. it can be traced to a division in a cost-effective manner.
12) Joint products A and B emerge from common processing that costs $80,000 and yields 5,000 units of Product A and 4,000 units of Product B. Product A can be sold for $100 per unit. Product B can be sold for $80 per unit. What amount of the joint costs will be assigned to Product A if joint costs are allocated on the basis of number of units produced? A. $48,780 B. $35,556 C. $44,444 D. $31,220
13) When a particular job is completed in a job order cost system, the general journal entry would include a A. debit to Finished Goods Inventory and a credit to the appropriate job order cost sheet. B. debit to Work in Process Inventory and a credit to Finished Goods Inventory. C. debit to Work in Process and a credit to Manufacturing Overhead. D. debit to Finished Goods Inventory and a credit to Work in Process Inventory.
Moore Company uses process costing. The following information was available for October: Units Costs Work in process Oct. 1 100 $ 7,500
Work in process Oct. 30 200 (A) Transferred in 1,000 $12,500
Ending inventory is 50% complete. Based on the information given, (A) above would be what amount?
A. $4,000 B. $2,000 C. $1,650 D. $1,500
15) The Ragan Corporation uses a process cost system. The company started March with 2,300 units in Work in Process Dept. A. During the month 4,000 units were started. At the end of the month there were 3,200 units in ending Work in Process Dept. A inventory that were 30% complete. The beginning work in process balance was $240,540 and total manufacturing cost for the period was $608,000. Based on this information, the amount of cost transferred from Work in Process Dept. A to Work in Process Dept. B was
A. $254,562. B. $200,640. C. $647,900. D. $543,233.
16) Brumlow Company has a contribution margin ratio of 25%. The company is considering a proposal that will increase sales by $100,000. What increase in profit can be expected assuming total fixed costs increase by $20,000?
A. $20,000 B. $15,000 C. $25,000 D. $5,000
17) Select the incorrect break-even equation from the following: A. Total contribution margin = total variable costs B. Total revenue = total costs C. Total fixed costs / contribution margin ratio D. Total contribution margin = total fixed costs
18) A product has a contribution margin of $6 per unit and selling price of $20 per unit. Fixed costs are $18,000. Assuming new technology doubles the unit contribution margin but increases total fixed costs by $15,000, what is the breakeven point in units?
A. 2,750 units B. 5,500 units C. 4,000 units D. 1,250 units
19) Which of the following items is not needed to prepare an inventory purchases budget for a merchandising business? A. Units in beginning inventory B. Desired units in ending inventory C. Expected unit selling price D. Expected unit sales
20) Which of the following budgets or schedules uses data contained in the selling and administrative expense budget?
A. Cash receipts schedule B. Sales budget C. Inventory purchases budget D. Cash payments schedule
21) Select the incorrect statement about the master budget. A. The master budget usually includes operating budgets, capital budgets and pro forma financial statements. B. Preparing the master budget begins with the sales forecast. C. The budgeting process usually begins with preparing the operating budgets. D. The master budget is a group of detailed budgets and schedules representing the company’s operating and financial plans for the past accounting period.
22) Huntsville Company reported a $4,000 unfavorable direct labor price variance and a $1,500 favorable direct labor usage variance. Select the incorrect statement from the following.
A. It took the employees less time to produce the outputs than expected. B. It is possible that the supervisor attempted to use more highly skilled (and paid) employees than allowed for by the direct labor standards. C. The total direct labor variance is $2,500 unfavorable. D. The standard direct labor rate must have exceeded the actual direct labor rate.
23) When would a variance be labeled as favorable?
A. When standard costs are less than actual costs B. When actual costs are less than standard costs C. When expected sales are greater than actual sales D. When standard costs are equal to actual costs
24) Gonzalez Company makes a product that is expected to use 1.2 pounds of material per unit of product. The material has a standard cost of $2 per pound. Gonzalez actually used 1.25 pounds of material per unit of product made in January. The actual cost of material was $1.95 per pound. Based on this information alone, the condition of the variances for the January production would be
A. unfavorable for price and favorable for usage. B. favorable for price and favorable for usage. C. favorable for price and unfavorable for usage. D. unfavorable for price and unfavorable for usage.
25) You are considering an investment in Delta Airlines stock and wish to assess the firm’s ability to generate earnings. All of the following ratios can be used to assess profitability except:
A. Asset turnover B. Average days to collect receivables C. Return on investment D. Net margin
26) You are considering an investment in Coca Cola Company stock and wish to assess the firm’s long-term debt-paying ability and its use of debt financing. All of the following ratios can be used to assess solvency expect:
A. Net margin B. Debt to assets ratio C. Debt to equity ratio D. Number of times interest is earned
27) You are considering an investment in IBM Company stock and wish to assess the firm’s short-term debt-paying ability. All of the following ratios are used to assess liquidity except: A. Inventory turnover B. Debt to equity ratio C. Quick ratio D. Accounts receivable turnover
28) Sometimes employees will deliberately overstate the amount of materials and/or labor that should be required to complete a job. The difference between inflated and realistic standards is known as
A. budget slack. B. cooking the books. C. lowballing. D. making the numbers.
29) In monitoring process quality we might use which of the following statistics?
A. Percentage deviation from tolerance centers B. Logarithmic control intervals C. k values for the sample mean D. Difference between the highest and lowest value in a sample E. Absolute values
30) Which manager is usually held responsible for materials usage variances? A. purchasing agent B. marketing manager C. plant manager D. production supervisor