1) the clemson company reported the following results last year for the manufacture and sale of one of its products know as Tam.
Sales (6,500 Tams at $130 each): $845,000
Variable cost of sales: 390,000
Variable distribution costs: 65,000
Fixed advertising expense: 275,000
salary of product line manager: 25,000
fixed manufacturing overhead: 145,000
net operating loss: $(55,000)
clemson company is trying to determine whether to discontinue the manufacture and sale of Tams. the operating results reported above for last year are expiated to continue in the foreseeable future if the product isn't dropped. the fixed manufacturing overhead represents the costs of production facilities and equipment that the Tam product shares with other products produced by Clemson. If the Tam product were dropped, there would be no change in the fixed manufacturing costs of the company. Assume that discontinuing the manufacture and sale of Tams will have no effect on the sale of other product lines. If the company discontinues the Tam product line, the change in annual operating income (or loss) should be a...
A. $70,000 increase
B. $90,000 decrease
C. $65,000 decrease
D. $55,000 decrease
2) (Ignore income teas in this problem) Purvell company has just acquired a new machine. Data on the machine follow:
purchase cost: $50,000
Annual cost savings: $15,000
Life of the machine: 8 years
The company uses straight-line depreciation and a $5,000 salvage value. (The company considers salvage value in making depreciation deductions.) Assume cash flows occur uniformly throughout the year.
The simple rate of return would be closest to:
3) Degner Inc. has some material that originally cost $19,500. the material has a scrap value of $13,300 as is, but if reworked at a cost of $2,100, it could be sold for $14,000. What would be the incremental effect on the company's overall profit of reworking and selling the material rather than selling it as is as scrap?
4) A project profitability index greater than zero for a project indicates that:
A. there has been a calculation error.
B. the company should reevaluate its discount rate.
C. the project is unattractive and shouldn't be pursued.
D. The discount rate is less than the internal rate of return.
5) Centerville company's debt-to-equity ratio is 0.60 total assets are $320,000, current assets are $170,000, and working capital is $80,000. Centerville's long-term liabilities must be:
6) Fonics corporation is considering the following three competing investments proposals:
Initial investment required: Aye: 62,000 Bee: 74,000 Cee: 95,000
net present value: Aye: 10,000 Bee: 8,000 Cee: 12,000
Internal rate of return: Aye.15% Bee: 17% Cee: 18%
Using the project profitability index, how would the above investments be ranked (Highest to Lowest)?
A. aye, cee, bee
B. aye, bee, cee
C. bee, cee, aye,
D. cee, bee, aye
7) Which of the following would be classified as a financing activity on the statement of cash flows?
A. dividends paid to shareholders of the compan on the company's common stock.
B. interest received on investments in another company's bonds.
C. Dividends received on investments in another company's common stock.
D. Interest paid on bonds issued by the reporting company.
8) Kava inc. manufactures industrial components. one of its products, which is used in the construction of industrial air conditioners, is knows as K65. Data concerning this product are given below:
selling price: 180
direct materials: 29
Direct labor: 5
variable manufacturing overhead: 4
fixed manufacturing overhead: 21
variable selling expense: 2
fixed selling and administrative expense: 17
the above per unit data are based on annual production of 4,000 units of the component. direct labor can be considered to be a variable cost.
The company has received a special, one-time-only order for 500 units of component K65. There would be no variable selling expense on this special order, and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company wouldn't be affected by the order. Assuming that Kava has excess capacity and can fill the order without cutting back on the production of any product, what is the minimum price per unit on the special order below which the company shouldn't go?