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Question 2 (2.5 points)

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The Cowboy’s Company needs 20,000 units of a certain part to use in its production cycle. Cowboys is considering the possibility of buying the part from Dolphins Company instead of making it. Sixty percent of the fixed overhead will remain regardless of the decision made. Accounting records indicate the following data: 

Cost to Cowboys to make the part: 
Direct materials, $4 
Direct labor, $16 
Variable factory overhead, $18 
Fixed factory overhead, $10 
Cost to buy the part for Dolphins Company, $36 

Which decision should Cowboys make & what is the total cost savings that would result?

 

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Question 3 (2.5 points)

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Company X has gathered the following data for it’s three product lines, X, Y, and Z.

  Product X Product Y Product Z
Contribution Margin $10,000 $12,000 $22,500
Units Produced 1,000 2,400 1,800
Labor hours required/unit 4 4 5
Machine hours required/unit 4 4 5

If Company X has a limited supply of labor hours, which product(s) should it prefer most?

 

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Question 4 (2.5 points)

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Which of the following statements is true

 

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Question 5 (2.5 points)

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A company uses the net present value method to evaluate planned capital expenditures. Everything else being equal, the lower the required rate of return they use, the ____ will be the net present value.

 

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Question 6 (2.5 points)

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The Sip & Dip Donut company is considering the acquisition of a new automatic donut dropper for $600,000. The machine will have a six-year life and will produce before tax cash savings of $200,000 each year. The asset is to be depreciated using the straight-line method with no salvage value. The company’s tax rate is 40 percent.

The after-tax net cash inflow on the investment is

 

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Question 7 (2.5 points)

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The Sip & Dip Donut company is considering the acquisition of a new automatic donut dropper for $600,000. The machine will have a six-year life and will produce before tax cash savings of $200,000 each year. The asset is to be depreciated using the straight-line method with no salvage value. The company’s tax rate is 40 percent.

The payback period is

 

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Question 8 (2.5 points)

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Equipment is purchased at a cost of $39,000. As a result, annual cash revenues will increase by $20,000; annual cash operating expenses will increase by $7,000; straight-line depreciation is used; the asset has a ten-year life; the salvage value is $3,000. Assuming a tax bracket of 34%, determine the accounting rate of return? (round to the nearest %)

 

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Question 9 (2.5 points)

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Shirt Co. wants to purchase a new cutting machine for its sewing plant. The investment is expected to generate annual net cash inflows of $30,000, have a useful life of 8 years, and an estimated salvage value of $10,000. If Shirt Co. has a required rate of return of 12%, the maximum amount they will be willing to spend for this machine is

 

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Question 10 (2.5 points)

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Darlington Company is considering investing in an equipment, which will increase yearly cash revenues by $65000, and yearly cash expenses to operate the equipment by $30,000. The asset will cost $200,000, and will last 8 years, with a salvage value of $40,000. Assuming a tax rate of 39%, determine the net present value of this asset, if the company requires a 10% return on investments.

 

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Question 11 (2.5 points)

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A company uses the net present value methodology in making capital expenditure decisions. In making a decision where they have to choose among two pieces of equipment, which of the following pieces of information will be considered irrelevant

 

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Question 12 (2.5 points)

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Baton Rouge Company is considering purchasing new equipment which will cost $950,000.  This equipment is expected to have a useful life of 15 years, have a salvage value of $50,000 and is expected to have an annual net cash inflow (before taxes) of $80,000.  Assume the company is in the 34% tax bracket.

What is Baton Rouge’s annual net cash inflow (after taxes)?

 

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Question 13 (2.5 points)

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Co. X has gathered the following estimates: 

 

Machine A

Machine B

Cost

$600,000

$600,000

Life 

5 yrs 

5 yrs

Yr 1 

$100,000

$500,000

Yr 2 

$200,000

$400,000

Yr 3 

$300,000

$300,000

Yr 4 

$400,000

$200,000

Yr 5 

$500,000

$100,000

Co. X uses the net present value method to evaluate capital expenditures. Which of the following two machines has the higher net present value?

 

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Question 14 (2.5 points)

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Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During November, they incurred joint processing costs of $420,000. Production and sales value information for November are as follows: 
  

Product

Cases

Selling Price/Case

Additional Costs/Case

Catsup

100,000

$10

$2

Tomato Juice

150,000

$8

$1

Canned Tomatoes

250,000

$12

$3

The joint cost allocated to Canned Tomatoes (using the net realizable value method) is (round to the closest $)

 

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Question 15 (2.5 points)

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Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During November, they incurred joint processing costs of $420,000. Production and sales value information for November are as follows: 
  

Product

Cases

Selling Price/Case

Additional Costs/Case

Catsup

100,000

$10

$2

Tomato Juice

150,000

$8

$1

Canned Tomatoes

250,000

$12

$3

Red Sauce Canning Company is considering an option to further refine Catsup. By incurring an additional cost of $60,000, they will be able to increase their selling price of Catsup to $11.20 per case. Determine the incremental advantage (disadvantage) of this option? (round to the closest $)

 

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Question 16 (2.5 points)

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Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During November, they incurred joint processing costs of $420,000. Production and sales value information for November are as follows: 
  

Product

Cases

Selling Price/Case

Additional Costs/Case

Catsup

100,000

$10

$2

Tomato Juice

150,000

$8

$1

Canned Tomatoes

250,000

$12

$3

If the company has a philosophy of marking up their products 20% over cost, the selling price per case of Tomato Juice should be (using the net realizable value method) (round to 2 decimal places)

 

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Question 17 (2.5 points)

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Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During November, they incurred joint processing costs of $420,000. Production and sales value information for November are as follows:
 

Product

Cases

Selling Price/Case

Additional Costs/Case

Catsup

100,000

$10

$2

Tomato Juice

150,000

$8

$1

Canned Tomatoes

250,000

$12

$3

The unit cost per case of Canned Tomatoes (using the physical volume method) is (round to 2 decimal places)

 

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Question 18 (2.5 points)

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A cost that is incurred between the split-off point and the point of sale is known as a:

 

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