# ACCT 505 Final Exam

**ACCT 505 Final Exam**

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1. A good example of a common cost which normally could not be assigned to products on a segmented income statement except on an arbitrary basis would be:

2.Turnover is computed by dividing average operating assets into:

3.A segment of a business responsible for both revenues and expenses would be called:

4.All other things being equal, if a division’s traceable fixed expenses increase:

5.In computing the margin in a ROI analysis, which of the following is used?

6.Net operating income is defined as:

7.Suppose a manager is to be measured by residual income. Which of the following will not result in an increase in the residual income figure for this manager, assuming other factors remain constant?

8. During April, Division D of Carney Company had a segment margin ratio of 15%, a variable expense ratio of 60% of sales, and traceable fixed expenses of $15,000. Division D’s sales were closest to:

9. Cable Company had the following results for the year just ended:

10. Use the following to answer question 10:

Ieso Company has two stores: J and K. During November, Ieso Company reported a net income of $30,000 and sales of $450,000. The contribution margin in Store J was $100,000, or 40% of sales. The segment margin in Store K was $30,000, or 15% of sales. Traceable fixed expenses are $60,000 in Store J, and $40,000 in Store K. The segment margin ratio in Store J was:

11.Company A’s residual income is:

12.Company A’s return on investment (ROI) is:

13. The following data are available for the South Division of Redride Products, Inc. and the single product it makes:

If South wants a residual income of $50,000 and the minimum required rate of return is 10%, the annual turnover will have to be:

14. The following selected data pertain to Beck Co.’s Beam Division for last year:

Sales $400,000

Variable expenses $100,000

Traceable fixed expenses $250,000

Average operating assets $200,000

Minimum required rate of return 20%

How much is the return on the investment?

15.Consider a decision facing a firm of either accepting or rejecting a special offer for one of its products. A cost that is not relevant is:

16.A study has been conducted to determine if Product A should be dropped. Sales of the product total $200,000 per year; variable expenses total $140,000 per year. Fixed expenses charged to the product total $90,000 per year. The company estimates that $40,000 of these fixed expenses will continue even if the product is dropped. These data indicate that if Product A is dropped, the company’s overall net operating income would:

17.Manor Company plans to discontinue a department that has a contribution margin of $24,000 and $48,000 in fixed costs. Of the fixed costs, $21,000 cannot be avoided. The effect of this discontinuance on Manor’s overall net operating income would be a(an):

18.Manor Company plans to discontinue a department that has a contribution margin of $25,000 and $50,000 in fixed costs. Of the fixed costs, $21,000 cannot be eliminated. The effect on the profit of Manor Company of discontinuing this department would be:

19.Green Company produces 1,000 parts per year, which are used in the assembly of one of its products. The unit product cost of these parts is: The part can be purchased from an outside supplier at $20 per unit. If the part is purchased from the outside supplier, two thirds of the fixed manufacturing costs can be eliminated. The annual impact on the company’s net operating income as a result of buying the part from the outside supplier would be:

20.Pitkin Company produces a part used in the manufacture of one of its products. The unit product cost of the part is $33, computed as follows:

An outside supplier has offered to provide the annual requirement of 10,000 of the parts for only $27 each. The company estimates that 30% of the fixed manufacturing overhead costs above will continue if the parts are purchased from the outside supplier. Assume that direct labor is an avoidable cost in this decision. Based on these data, the per unit dollar advantage or disadvantage of purchasing the parts from the outside supplier would be:

21. Cardinal Company needs 20,000 units of a certain part to use in one of its products. The following information is available:

Oriole Company has offered to sell this part to Cardinal company for $36 each. If Cardinal buys the part from Oriole instead of making it, Cardinal would not have any use for the released capacity. In addition, 60% of the fixed manufacturing overhead costs will continue regardless of what decision is made. Assume that direct labor is an avoidable cost in this decision. In deciding whether to make or buy the part, the total relevant costs to make the part are:

22. Products A, B, and C are produced from a single raw material input. The raw material costs $90,000, from which 5,000 units of A, 10,000 units of B, and 15,000 units of C can be produced each period. Product A can be sold at the split-off point for $2 per unit, or it can be processed further at a cost of $12,500 and then sold for $5 per unit. Product A should be:

23. The Tolar Company has 400 obsolete desk calculators that are carried in inventory at a total cost of $26,800. If these calculators are upgraded at a total cost of $10,000, they can be sold for a total of $30,000. As an alternative, the calculators can be sold in their present condition for $11,200. The sunk cost in this situation is:

24. Aholt Company makes 40,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows:

Direct materials $11.30

Direct labor 22.70

Variable manufacturing overhead 1.20

Fixed manufacturing overhead 24.70

Unit product cost $59.90

An outside supplier has offered to sell the company all of these parts it needs for $46.20 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $264,000 per year.

If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $21.90 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company’s remaining products. How much of the unit product cost of $59.90 is relevant in the decision of whether to make or buy the part?

25. The Madison Company produces three products with the following costs and selling prices:

A B C

Selling price per unit $16 $21 $21

Variable cost per unit 7 11 13

Contribution margin per unit $ 9 $10 $ 8

Direct labor hours per unit 1 1.5 2

Machine hours per unit 4.5 2 2.5

If direct labor-hours is the company’s production constraint, then the three products should be produced in the order:

26.If Austin chooses to produce 4,000 afghans each month, the change in the monthly net operating income as compared to selling 4,000 spindles of yarn is:

27. What is the lowest price Austin should be willing to accept for one afghan as long as it can sell spindles of yarn to the outside market for $12 each?

28.(Ignore income taxes in this problem.) How is depreciation handled by the following capital budgeting techniques?

29. The payback method measures:

30.The evaluation of an investment having uneven cash flows using the payback method:

31.If the net present value of a project is zero based on a discount rate of sixteen percent, then the time-adjusted rate of return:

32. (Ignore income taxes in this problem.) A company with $800,000 in operating assets is considering the purchase of a machine that costs $75,000 and which is expected to reduce operating costs by $20,000 each year. The payback period for this machine in years is closest to:

33.(Ignore income taxes in this problem.) Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $450,000 and would have a ten-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $20,000 per year to operate and maintain, but would save $100,000 per year in labor and other costs. The old machine can be sold now for scrap for $50,000. The simple rate of return on the new machine is closest to:

34.Perkins Company is considering several investment proposals, as shown below:

Investment Proposal A B C D

Investment required $80,000 $100,000 $60,000 $75,000

Present value of future net cash flows 96,000 150,000 84,000 120,000

Rank the proposals in terms of preference using the profitability index:

35. (Ignore income taxes in this problem.) The following data pertain to an investment proposal:

Cost of the investment $20,000

Annual cost savings $ 5,000

Estimated salvage value $ 1,000

Life of the project 8 years

Discount rate 16%

The net present value of the proposed investment is:

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36. (Ignore income taxes in this problem.) Sam Weller is thinking of investing $70,000 to start a bookstore. Sam plans to withdraw $15,000 from the business at the end of each year for the next five years. At the end of the fifth year, Sam plans to sell the business for $110,000 cash. At a 12% discount rate, what is the net present value of the investment?

37. (Ignore income taxes in this problem.) The Finney Company is reviewing the possibility of remodeling one of its showrooms and buying some new equipment to improve sales operations. The remodeling would cost $120,000 now and the useful life of the project is 10 years. Additional working capital needed immediately for this project would be $30,000; the working capital would be released for use elsewhere at the end of the 10-year period. The equipment and other materials used in the project would have a salvage value of $10,000 in 10 years. Finney’s discount rate is 16%. The immediate cash outflow required for this project would be:

38. The present value of all future operating cash inflows is closest to:

39. The present value of the net cash flows (all cash inflows less all cash outflows) occurring during year 4 is:

40. The present value of the net cash flows (all cash inflows less all cash outflows) occurring during year 6 is closest to: