GCU ACC650 Week 8 Quiz Latest 2019 October

ACC650 Managerial Accounting

Week 8 Quiz

•             San Ruiz Interiors provides design services to residential and commercial clients. The residential services produce a contribution margin of $450,000 and have traceable fixed operating costs of $480,000. Management is studying whether to drop the residential operation. If closed, the fixed operating costs will fall by $370,000 and San Ruiz’ income will:

•decrease by $80,000.

•increase by $80,000.

•increase by $30,000.

•increase by $340,000.

•decrease by $340,000.

•             A company that is using the internal rate of return (IRR) to evaluate projects should accept a project if the IRR:

•is greater than the project’s net present value.

•equates the present value of the project’s cash inflows with the present value of the project’s cash outflows.

•is greater than zero.

•is greater than the hurdle rate.

•is less than the firm’s cost of investment capital.

•             Carmen Company has an asset that cost $5,000 and currently has accumulated depreciation of $2,000. Suppose the firm sold the asset for $2,500 and is subject to a 30% income tax rate.  The loss on disposal would be:

•$350.

•$500.

•$650.

•$2,500.

•None, because the transaction produced a gain.

•             The following costs relate to Tower Company: Variable manufacturing cost, $30; variable selling and administrative cost, $8; applied fixed manufacturing overhead, $15; and allocated fixed selling and administrative cost, $4. If Tower uses absorption manufacturing-cost pricing formulas, the company’s markup percentage would be computed on the basis of:

•$30.

•$38.

•$45.

•$57.

•None of the answers is correct.

•             If a company has excess capacity, which of the following is a sensible bidding strategy?

•Allocate common fixed costs to individual jobs before preparing the bid.

•Downplay the potential impact of competitors.

•Base the bid on the incremental costs incurred because the job will contribute toward the company’s profit.

•Base the bid solely on direct labor hours.

•Set a price to cover all costs.

 

•             Consider the following statements about the investment in working capital in a capital budgeting analysis:

I. Working capital often increases as the result of higher balances in accounts receivable or inventory necessary to support a project.

II. Working capital increases are sources of cash and should be included in a discounted-cash-flow analysis.

III. The time 0 cash investment in working capital is included in a discounted-cash-flow analysis as a cash outflow.

Which of the above statements is (are) correct?

•I and III.

•III only.

•I and II.

•II only.

•I only.

•             Cornerstone, Inc. has $125,000 of inventory that suffered minor smoke damage from a fire in the warehouse. The company can sell the goods “as is” for $45,000; alternatively, the goods can be cleaned and shipped to the firm’s outlet center at a cost of $23,000. There the goods could be sold for $80,000. What alternative is more desirable and what is the relevant cost for that alternative?

•Sell “as is,” $125,000.

•Clean and ship to outlet center, $23,000.

•Clean and ship to outlet center, $103,000.

•Clean and ship to outlet center, $148,000.

•Neither alternative is desirable, as both produce a loss for the firm.

•             Charter Corporation manufactures a single product that has a cost of $350. The company uses a 70% markup on cost to arrive at a selling price of $595, which results in a price that virtually always exceeds that of the market leaders. If Charter changes to the approach known as target costing, the company will first:

•trim its $350 cost.

•undertake a thorough study of competitors’ prices.

•reduce its 70% markup rate.

•attempt to re-engineer its product.

•change the markup so that it is based on sales rather than based on cost.

•             A factory that makes a part has significant idle capacity. The factory’s opportunity cost of making this part is equal to:

•the variable manufacturing cost per unit.

•the fixed manufacturing cost per unit.

•the semivariable cost per unit.

•the total manufacturing cost per unit.

•zero.

•             If the volume sold reacts strongly to changes in price, demand:

•is inelastic.

•has no elasticity.

•is elastic.

•is unrealistic.

•has negative elasticity.

•             Which of the following statements regarding costs and decision making is correct?

•Sunk costs can be misleading in make-or-buy decisions because these amounts appear to be relevant differential costs.

•Per-unit fixed cost amounts are valid only for make-or-buy decisions.

•Per-unit fixed costs can be misleading because such amounts appear to behave as variable costs when, in actuality, the amounts are related to fixed expenditures.

•Fixed costs must be considered only on a per-unit basis.

•Opportunity costs should be ignored when evaluating decision alternatives

•             Carlin Company, which uses net present value to analyze investments, requires a 10% minimum rate of return. A staff assistant recently calculated a $500,000 machine’s net present value to be $86,400, excluding the impact of straight-line depreciation.

FV of 1 (i=10%, n=5): 1.611

FV of a series of $1 cash flows (i=10%, n=5): 6.105

PV of $1 (i=10%; n = 5): 0.621

PV of a series of $1 cash flows (i=10%, n=5): 3.791

If Carlin ignores income taxes and the machine is expected to have a five-year service life, the correct net present value of the machine would be:

•$292,700.

•$465,500.

•$86,400.

•$186,400.

•$(13,600).

•Which of the following tools is sometimes used to rank investment proposals?

•Annuity index.

•Investment opportunity index.

•Project assessment guide (PAG).

•Profitability index.

•Capital ranking index.

•             Julio Company purchased a $200,000 machine that has a four-year life and no salvage value. The company uses straight-line depreciation on all asset acquisitions and is subject to a 30% tax rate. The proper cash flow to show in a discounted-cash-flow analysis as occurring at time 0 would be:

•$(140,000).

•$50,000.

•$(200,000).

•$(35,000).

•$15,000.

•             McAlister Company is operating at capacity and desires to add a new service to its rapidly expanding business. The service should be added as long as service revenues exceed:

•the sum of variable costs and any related opportunity costs.

•the sum of variable costs and fixed costs.

•fixed costs

•variable costs.

•the sum of variable costs, fixed costs, and any related opportunity costs.

•             The term “opportunity cost” is best defined as:

•the amount of money paid for an item, taking possible discounts into account.

•an irrelevant decision factor.

•the amount of money paid for an item, taking inflation into account.

•the amount of money paid for an item.

•the benefit associated with a rejected alternative when making a choice.

•Which of the following costs can be ignored when making a decision?

•Relevant costs.

•Opportunity costs.

•Differential costs.

•All future costs.

•Sunk costs.

•A piece of equipment costs $30,000, and is expected to generate $8,500 of annual cash revenues and $1,500 of annual cash expenses. The disposal value at the end of the estimated 10-year life is $3,000. Ignoring income taxes, the payback period is:

•4.29 years.

•Some other period of time not noted

•6.98 years.

•3.86 years

•3.53 years.

•When determining the markup to be used in a cost-plus pricing formula, many companies base the markup on a target:

•sales margin.

•debt-to-equity ratio.

•capital turnover.

•earnings per share.

•return on investment.

•Which of the following project evaluation methods focuses on accounting income rather than cash flows?

Payback period.

•None of the answers is correct.

•Net present value.

•Internal rate of return.

•Accounting rate of return.