1) 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
2) Chartreuse Company has two investment opportunities. Both investments cost $5,000 and will provide the following net cash flows:
Year Investment A Investment B
Year 1 3,000 3,000
Year 2 3,000 4,000
Year 3 3,000 2,000
Year 4 3,000 1,000
The total present value of Investment A’s cash inflows assuming a 10% minimum rate of return is (round to the nearest whole dollar):
3) An investment that costs $30,000 will produce annual cash flows of $10,000 for a period of 4 years. Given a desired rate of return of 8%, the investment will generate a (round your answer to the nearest whole dollar).
A. positive net present value of $33,121
B. positive net present value of $3,121
C. negative net present value of $33,121
D. negative net present value of $3,121
4) Which of the following does not represent an advantage of the unadjusted rate of return over the payback method for evaluating capital projects?
A. The unadjusted rate of return method considers the investment's profitability.
B. All of these are advantages
C. The unadjusted rate of return method considers the recovery of the initial investment in the project.
D. The unadjusted rate of return is a percentage that can be compared to a stated hurdle rate.
5) The rate of return that equates the present value of cash inflows and outflows is the
A. minimum rate of return.
B. none of these.
C. internal rate of return.
D. desired rate of return
6) Select the incorrect statement concerning the internal rate of return (IRR) method of evaluating capital projects.
A. The higher the IRR the better.
B. The internal rate of return is that rate that makes the present value of the initial outlay equal to zero.
C. A project whose IRR is less than the cost of capital should be rejected.
D. If a project has a positive net present value then its IRR will exceed the hurdle rate.
7) Melanie Company is considering a capital project that costs $16,000. The project will deliver the following cash flows:
Year 1 Year 2 Year 3 Year 4 Year 5
$8,000 $6,000 $5,000 $6,000 $5,000
Using the incremental approach, the payback period for the investment is
A. 5 years.
B. 1.66 years.
C. 2.4 years.
D. 2 years.
8) An investment that costs $30,000 will produce annual cash flows of $10,000 for a period of 4 years. Given a desired rate of return of 8%, the investment will generate a (round your answer to the nearest whole dollar)
A. positive net present value of $33,121
B. negative net present value of $3,121
C. positive net present value of $3,121
D. negative net present value of $33,121
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?
10) Perrot Company has three divisions. For Perrot, a cost should be considered a direct cost if
A. it meets certain guidelines imposed by generally accepted accounting principles.
B. it can be traced to a division in a cost-effective manner.
C. it is a fixed cost.
D. it can be allocated to a division using an volume-based cost driver.
11) Mickey & Co. expects overhead costs of $30,000 per month and direct production costs of $12 per unit. The estimated production activity for the 20X4 accounting period is as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units Produced 11,500 9,000 8,250 11,250
The predetermined overhead rate based on units produced is (rounded to the nearest penny) is
A. $0.75 per unit.
B. $1.33 per unit.
C. $21.00 per unit.
D. $9.00 per unit.
12) 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?
13) 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
14) Kent Company had 800 units of product in its work in process inventory at the beginning of the period. During the period 3,000 additional units of product were started. At the end of the period there were 1,500 units of product in the work in process account. The ending work in process inventory was estimated to be 30% complete. The beginning work in process inventory had a balance of $2,000. There were $42,000 of product costs added to work in process during the period. The amount of cost in ending work in process inventory is
15) Moore Company uses process costing. The following information was available for October:
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?
16) Peacock Company sells its product for $100 per unit. The company's accountant provided the following cost information:
Manufacturing Costs: $20,000 + 40% of Sales
Selling Costs: $10,000 + 20% of Sales
Administrative Costs: $15,000 + 10% of Sales
What is Peacock Company's contribution margin ratio
17) Select the incorrect break-even equation from the following:
A. Total contribution margin = total fixed costs
B. Total fixed costs / contribution margin ratio
C. Total revenue = total costs
D. Total contribution margin = total variable costs
18) Which of the following is not an assumption made when performing cost-volume-profit analysis?
A. Number of units produced is greater than the number of units sold.
B. The company produces within the relevant range of activity.
C. There is a linear relationship between cost and volume for both fixed and variable cost.
D. Worker efficiency is held constant.
19) Select the incorrect statement about the master budget.
A. The master budget is a group of detailed budgets and schedules representing the company's operating and financial plans for the past accounting period.
B. The master budget usually includes operating budgets, capital budgets and pro forma financial statements.
C. Preparing the master budget begins with the sales forecast.
D. The budgeting process usually begins with preparing the operating budgets.
20) Which of the following would represent the order in which most master budgets are prepared?
A. Sales, Purchases, Cash, Income Statement
B. Purchases, Cash, Sales, Income Statement
C. Income Statement, Cash, Sales, Purchases
D. Purchases, Sales, Cash, Income Statement
21) Which of the following items would be least useful in preparing a schedule of cash receipts?
A. Expected revenue from cash sales.
B. Past accounts receivable collection experience.
C. Number of units expected to be purchased.
D. Service charges for credit card sales.
22) When would a variance be labeled as favorable?
A. When standard costs are equal to actual costs
B. When standard costs are less than actual costs
C. When actual costs are less than standard costs
D. When expected sales are greater than actual sales
23) When would a variance be labeled as unfavorable?
A. When standard costs are more than actual costs
B. When expected sales are more than actual sales
C. none of the these
D. When actual sales are equal to expected sales
24) Select the correct statement from the following assuming Camacho Company had a favorable direct materials price variance of $2,500 and an unfavorable direct materials usage variance of $1,000.
A. The total direct materials variance is $3,500 favorable.
B. The total direct materials variance is $3,500 unfavorable.
C. The total direct materials variance is $1,500 unfavorable.
D. The total direct materials variance is $1,500 favorable.
25) Jekyll Company collected $500 on account. What impact will this transaction have on the firm's current ratio?
A. Increase it
B. Decrease it
C. Not enough information is provided to answer the question.
D. No impact
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. Number of times interest is earned
B. Net margin
C. Debt to assets ratio
D. Debt to equity ratio
27) The Zintrozak Company reported net income of $50,000 on sales of $300,000. The company has total assets of $500,000 and total liabilities of $100,000. What is the company's return on equity ratio?
28) Which of the following is an analytical tool used in six-sigma quality improvement programs?
B. Pareto Charts
D. Management by fact
E. Continuous improvement
29) Which of the following is an approach to dealing with a bottleneck?
A. Keep a buffer inventory in front of it to insure that it always has something to work on
B. Pay an incentive bonus to workers on the bottleneck operation
C. Move things to a faster bottleneck
D. Don’t worry about the bottleneck; it will take care of itself
E. Use Johnson’s sequencing rules on bottleneck operations
30) Which manager is usually held responsible for materials usage variances?
A. plant manager
B. production supervisor
C. marketing manager
D. purchasing agent