finance questions

Urbana Corporation is considering the purchase of a new machine costing $75,000. The machine would generate net cash inflows of $24,214 per year for 5 years. At the end of 5 years, the machine would have no salvage value. Urbana's cost of capital is 12 percent. Urbana uses straight-line depreciation.

The investment's payback period in years (rounded to two decimal points) is:

3.30

3.10

4.00

9.48

Standard costs:

Indicate what it should cost to produce one unit of a product under efficient operating conditions

Should be used in planning and controlling all costs

Should be developed from average historical costs

Are determined by regulators

The third phase of a project's cash flows is:

Initial project investment

Disinvestment

Operations

Remodeling

Project A has a predicted payback period of 2.5 and Project B has a predicted payback period of 5. Based on this information we can conclude:

Project A is preferred to Project B

Project B provides twice the return of Project A

Project B is preferred to Project A, but it is not necessarily twice as profitable

More information should be gathered before deciding on which project, if either, is desirable

Both investment center and cost center managers are responsible for managing:

Revenues

Net income

Costs

Contribution margins

The practical capacity for a particular production facility is best described as:

The highest level of activity possible allowing for normal repairs and maintenance

The highest level of activity possible under any circumstance

The highest level of activity at which average costs are minimized

The level of activity that makes the most practical sense within the framework of a given situation

Clarinet Publishing is considering the purchase of a used printing press costing $38,400. The printing press would generate a net cash inflow of $20,000 a year for 5 years. At the end of 5 years, the press would have no salvage value. The company's cost of capital is 10 percent. The company uses straight-line depreciation.

The investment's payback period in years (rounded to two decimal points) is:

2.56

2.13

1.92

3.00

Which of the following is not a drawback to cost-based pricing?

Cost-based pricing requires accurate cost assignments.

The greater the portion of unassigned costs, the greater the likelihood of overpricing and underpricing individual products.

Cost-based pricing assumes goods or services are relatively scarce, and customers who want a product or service are, generally, willing to pay the price.

In a competitive environment, cost-based approaches decrease the time and cost of bringing new products to market.

Alsfeld Company has two service departments (S1 and S2) and two producing departments (A and B). Department S1 serves Departments S2, A, and B in the following percentages, respectively: 10%, 35%, and 55%. Department S2 serves Departments S1, A, and B in the following percentages, respectively: 0%, 60%, and 40%. Direct department costs for S1, S2, A, and B are $300,000, $32,000, $420,000, and $390,000, respectively.

If Alsfeld uses the step method of allocating service department costs beginning with department S1, what is the total amount of cost that will be allocated from S2 to department A?

$12,800

$105,000

$37,200

$-0-

Patrick Company has predicted the following costs for this year for 50,000 units:

Manufacturing Selling and Administrative

Variable $ 400,000 $ 50,000

Fixed 600,000 150,000

Total $1,000,000 $200,000

What is the manufacturing cost markup needed to obtain a target profit of $145,000?

10.4 percent

33.5 percent

500.0 percent

34.5 percent

Which of the following statements concerning activity-based management is true?

Activity-based management is concerned with maximizing the value of activities.

Activity-based management is concerned with minimizing the cost of activities.

Activity-based management is concerned with improving processes.

All of the above statements are true.

Ideally, cycle time would consist of only which of the following components?

Process time

Sales time

Move time

Just-in-time

The internal rate of return is sometimes called the:

Adjusted accounting rate or return

Cost of capital

Discount rate

Time-adjusted rate of return

Long Horn Medical Services is considering an investment of $100,000. Assume the discount rate is 18%. Data related to the cash inflows are as follows:

Year Cash Inflows

1 $50,000

2 46,000

3 60,000

4 80,000

5 50,000

Using a spreadsheet or financial calculator, determine the net present value for the investment.

The investment's net present value is:

$ 62,920

$186,000

$114,237

$ 75,046

Which of the following statements describes the typical effect of creating a large number of refined activity cost pools for a given costing application?

A complex ABC system with numerous cost pools provides substantial cost improvement over a smaller system with only seven to ten cost pools.

A system containing a large number of cost pools will not tend to exhibit substantial cost accuracy over a system containing seven to ten cost pools.

With the aid of a computer, every public company should strive to develop as many cost pools as possible because there is virtually no disadvantage of so doing.

Employees normally develop a deep appreciation for the complexity of a large, tedious ABC system.

The approach toward management that considers the absence of significant differences between planned and actual results as an indication that everything is proceeding as planned is known as:

The control principal

The Peter principal

Budget constraints

Management by exception

Budgets based on the actual level of output, rather than the output originally budgeted, are called:

Activity budgets

Flexible budgets

Operating budgets

Static budgets

Brown Division operates as a revenue center. Data for this year are as follows:

Actual Budget

Sales in units 44,000 40,000

Selling price per unit $190 $200

Variable expense per unit $140

What is the total revenue variance?

$220,000 (U)

$360,000 (F)

$180,000 (F)

$220,000 (F)

Plainfield Company has two divisions: the Mixing Division and Bottling Division. The Mixing Division sells beverage mix to the Bottling Division. Standard costs for the Mixing Division are as follows:

Direct materials $4.00 per gallon

Direct labor 1.60 per gallon

The Mixing Division uses the following predetermined overhead rate:

Variable overhead $2.40 per gallon

Fixed overhead 1.60 per gallon

Total $4.00 per gallon

What is the transfer price for the beverage mix per gallon based on standard absorption cost plus a markup of 30 percent?

$ 10.75

$ 12.48

$ 17.50

$ 9.50

Which of the following costs would not be considered an order getting-cost?

The cost of advertising

The cost of prospect lists

The cost of packaging

The cost of entertainment of clients

Which of the following is a true characteristic of activity-based costing?

Activity-based costing uses a smaller number of cost pools than does organizational-based costing.

Relative to traditional costing methods, activity-based costing is more concerned with identifying processes and less concerned with causal factors of overhead costs.

Activity-based costing removes the use of judgment from the allocation process.

Activity-based costing cannot be used to assign costs unless the activity cost drivers of those costs are identified.

Which of the following accurately describes the effect target costing has on the manufacturing design function?

Target costing allows the design engineer's job to end once the product is designed.

Target costing forces design engineers to explicitly consider the costs of manufacturing and other aspects of business that traditionally fall outside the engineering department.

Target costing defines clear lines of responsibility among departments allowing for design engineers to be evaluated purely on meeting the customer's functional requirements.

Target costing has no implications for design engineering.

Which of the following is a legitimate disadvantage of a 100%-of-variable-cost transfer pricing?

This price will not allow the selling division to make a long-run profit.

This price will discourage the purchasing division from buying internally.

At this price, if the selling division does not have excess capacity, the selling division will not wish to sell anything to the outside market.

If the selling division has excess capacity, this transfer price will often lead the purchasing division to act inconsistently with corporate goals.

The following information pertains to Gus Company:

Service Departments Producing Departments

Personnel Maintenance Fabrication Assembly

Budgeted overhead $320,000 $576,000 $560,000 $640,000

Direct labor-hours 4,000 5,000 16,000 20,000

Machine-hours 24,000 16,000

Number of employees 8 10 30 50

Gus Company does not divide costs into fixed and variable components. Personnel costs are allocated based on the number of employees, and maintenance costs are allocated based on machine-hours. Predetermined overhead rates for Fabrication and Assembly are based on direct labor-hours (round amounts to dollars).

If the direct method is used to allocate service department costs, the predetermined overhead rate for the Fabrication Department (rounded to 2 decimal places) would be:

$42.00

$52.76

$64.10

$69.55

The Year 1 selling expense budget for Zap Corporation is as follows:

Budgeted sales $550,000

Selling costs:

Delivery expenses $5,500

Commission expenses 11,000

Advertising expenses 5,000

Office expenses 3,000

Miscellaneous expenses 6,950

Total $ 31,450

Delivery and commission expenses vary proportionally with budgeted sales in dollars. Advertising and office expenses are fixed. Miscellaneous expenses include $2,000 of fixed costs. The rest varies with budgeted sales in dollars. The budgeted sales for Year 2 are $660,000.

What will be the value of miscellaneous expenses in the Year 2 selling expense budget?

$6,200

$4,200

$7,940

$3,600

Falcon Company had sales of $3,000,000, net income of $400,000, and an asset base of $1,200,000. Its investment turnover is:

0.25

3.30

2.50

1.50

Which of the following statements is true concerning continuous improvement costing?

It is also referred to as Kaizen costing

It is a prerequisite for target pricing

It calls for the establishment of cost reduction targets for products or services

Both A and C

______________ is (are) the difference between the sales price needed to capture a predetermined market share and the desired profit per unit.

Gross profit

Target cost

Target price

Contribution margin

Although adding more activity cost pools to an activity-based costing system may improve the precision of product costing, this increase in precision must be judged against:

The cost of the product

The price of the product

The cost of developing and maintaining the additional cost pools

All of the above

What is a transfer price?

The amount charged for a product or service that one division provides another

The amount charged for goods and services offered to the government

An amount charged to cover the costs associated with import/export taxes

The amount charged the final consumer to cover all costs incurred along the value chain

Lowering cycle times reduces the need for:

Raw materials

Speculative inventories

Inspection

Materials handling

An activity is:

A unit of work

Typically not part of a process

Made up of several units of work

Unrelated to a process

________________ is a systematic approach to identifying the best practices to help an organization take action to improve performance.

Target costing

ISO 9000

Activity-based management

Benchmarking

Nicky's Donut Shop is considering an investment of $100,000. The cost of capital is 14%. Data related to the investment are as follows:

Year Cash Inflows

1 $90,000

2 88,000

3 64,000

4 120,000

5 120,000

Using a spreadsheet or financial calculator, determine the net present value for the investment.

The net present value of the investment is:

$214,352

$223,233

$382,000

$323,233

Which of the following is not a common approach to developing a budget?

The incremental approach

The input/output approach

The qualitative approach

The minimum level approach

The following information is available pertaining to Iris Division that uses a plantwide overhead rate based on machine hours:

Mixing Dept. Finishing Dept. Total

Overhead $60,000 $150,000 $210,000

Direct labor-hours 7,500 2,500 10,000

Machine-hours 2,500 7,500 10,000

Production information pertaining to Job 101:

Mixing Dept. Finishing Dept. Total

Prime costs $10,000 $ 0 $10,000

Direct Labor-hours 250 0 250

Machine-hours 10 10 20

Units produced 500 0 500

What are the total overhead costs assigned to Job 101?

A. $240

B. $420

C. $360

D. $180

$240

$420

$360

$180

Which of the following statements concerning the minimum level approach to budgeting is true?

The minimum level approach to budgeting establishes a base amount for all budget items and requires explanation or justification for any budgeted amount above that level.

The minimum level approach to budgeting budgets physical inputs and costs as functions of planned activity.

The minimum level approach to budgeting budgets costs for a coming period as a dollar or percentage change from the amount budgeted or spent in some previous period.

The minimum level approach to budgeting has been more widely used in government than in business organizations.

Andersen Co. has predicted the following costs for this year for 345,000 units:

Manufacturing Selling and Administrative

Variable $ 900,000 $200,000

Fixed 1,200,000 400,000

Total $2,100,000 $600,000

What is the markup on selling and administrative costs needed to break even?

133.0 percent

230.0 percent

350.0 percent

120.0 percent

The Durango Lumber Company had the following historical accounting data, per 100 board feet, concerning one of its products in the Sawmill Division:

Finished shelving:

Direct materials $60

Direct labor 32

Variable manufacturing overhead 16

Fixed manufacturing overhead 24

The historical data is based on an average volume per period of 20,000 board feet. The shelving is normally transferred internally from the Sawmill Division to the Finishing Division. Durango may also sell the shelving externally for $180 per 100 board feet. The divisions are taxed at identical rates.

Which of the following transfer pricing methods would lead to the highest Finishing Division income if 10,000 board feet are produced and transferred in entirety this period from Sawmill to Finishing?

Market price

All variable costs plus 50 percent markup

Full absorption costing plus 10 percent markup

None of these methods generates a higher division income than another.

Which of the following situations gives rise to the need for a transfer price?

Two divisions of the same company sell to the same wholesaler

Two divisions of the same company sell competing products to the same customer

Two divisions of the same company sell to one another

Both B and C