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 Aâ€™s cash inflows assuming a 10% minimum rate of return is (round to the nearest whole dollar):
[ ( 3000/(1.10)^4) + ( 3000/(1.10)^3) + ( 3000/(1.10)^2) + ( 3000/(1.10)^1)]
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).
30000 – [ ( 10000/(1.08)^4) + ( 10000/(1.08)^3) + ( 10000/(1.08)^2) + ( 10000/(1.08)^1)]
A. positive net present value of $33,121
B. negative net present value of $33,121
C. positive net present value of $3,121
D. negative net present value of $3,121
4) Which of the following is not a factor in explaining why the present value of a future dollar is less than one dollar?
B. Historical cost
D. Risk of failure to collect
5) Select the incorrect statement concerning the internal rate of return (IRR) method of evaluating capital projects.
A. The higher the IRR the better.
B. If a project has a positive net present value then its IRR will exceed the hurdle rate.
C. A project whose IRR is less than the cost of capital should be rejected.
D. The internal rate of return is that rate that makes the present value of the initial outlay equal to zero.
6) A capital budget tool that includes the assumption that all cash inflows are reinvested at the firms cost of capital is:
A. The unadjusted rate of return
B. The Net Present Value
C. The accounting rate of return
D. The Modified Internal Rate of Return
7) Cash outflows can be categorized into all of the following groups except
A. opportunity costs associated with selecting a specific capital project.
B. working capital commitments.
C. outflows associated with the initial investment.
D. increases in operating expenses.
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. less than the desired rate of return.
B. greater than the desired rate of return.
C. equal to the desired rate of return.
D. the answer cannot be determined from the information provided.
9) 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
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?
11) 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 allocated to a division using an volume-based cost driver.
C. it can be traced to a division in a cost-effective manner.
D. it is a fixed cost.
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?
13) The Ragan Corporation uses a process cost system. The company started March with 2,300 units in Work in Processâ€“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 Processâ€“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 Processâ€“Dept. A to Work in Processâ€“Dept. B was
14) The Work in Process account for Monty’s Company contained the following entries:
Work in Process Account
Debit of $40,000 for direct raw materials
Debit of $60,000 for direct labor
Debit of $30,000 for manufacturing overhead
Ending balance, $42,000 associated with Job #2
The company uses a job-order cost system. Work was only performed on two jobs during the period.
What was the cost of Job # 1?
15) Congress Manufacturing is currently working on two jobs. The job order cost sheets for Job 101 and Job 102 showed the following information:
Job 101 Job 102
Direct Materials $12,000 $15,000
Direct Labor $24,000 $45,000
If overhead is applied to jobs at $.80 per direct labor dollar, the total manufacturing cost for the company would be
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?
17) 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. 1,250 units
B. 2,750 units
C. 4,000 units
D. 5,500 units
18) Select the incorrect break-even equation from the following:
A. Total contribution margin = total fixed costs
B. Total contribution margin = total variable costs
C. Total fixed costs / contribution margin ratio
D. Total revenue = total costs
19) 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. Purchases, Sales, Cash, Income Statement
D. Income Statement, Cash, Sales, Purchases
20) 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. Service charges for credit card sales.
D. Number of units expected to be purchased.
21) 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. Preparing the master budget begins with the sales forecast.
C. The master budget usually includes operating budgets, capital budgets and pro forma financial statements.
D. The budgeting process usually begins with preparing the operating budgets.
22) When would a variance be labeled as unfavorable?
A. When standard costs are more than actual costs
B. none of the these
C. When expected sales are more than actual sales
D. When actual sales are equal to expected sales
23) 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 unfavorable for usage.
B. favorable for price and favorable for usage.
C. unfavorable for price and favorable for usage.
D. favorable for price and unfavorable for usage.
24) 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. The standard direct labor rate must have exceeded the actual direct labor rate.
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. It took the employees less time to produce the outputs than expected.
D. The total direct labor variance is $2,500 unfavorable.
25) 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. Quick ratio
B. Accounts receivable turnover
C. Inventory turnover
D. Debt to equity ratio
26) Jekyll Company collected $500 on account. What impact will this transaction have on the firm’s current ratio?
A. Increase it
B. Not enough information is provided to answer the question.
C. Decrease it
D. No impact
27) 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. Net margin
B. Average days to collect receivables
C. Asset turnover
D. Return on investment
28) In monitoring process quality we might use which of the following statistics?
A. Absolute values
B. Logarithmic control intervals
C. Percentage deviation from tolerance centers
D. â€œkâ€ values for the sample mean
E. Difference between the highest and lowest value in a sample
29) 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
B. making the numbers.
C. budget slack.
D. cooking the books.
30) Which manager is usually held responsible for materials usage variances?
A. plant manager
B. production supervisor
C. purchasing agent
D. marketing manager