(TCO 6) Hyde Inc. is comparing several alternative capitalbudgeting projects as shown below.
Projects
A
B
C
Initial Investment
$110,000
$90,000
$50,000
Present value of cash inflows
$100,000
$100,000
$60,000
Using the profitability index, rank the projects, starting with themost attractive. (Points : 5) A, C, B
A, B, C
C, A, B
C, B, A
Question 11. 11. (TCO 6) A company has aminimum required rate of return of 10%. It is considering investingin a project that costs $210,000 and is expected to generate cashinflows of $85,000 at the end of each year for 4 years. Theapproximate net present value of this project is _____.
(Points : 5)
$59,442
$1,387
$65,375
$5,161
Question 12. 12. (TCO 7) Which one of thefollowing is not needed in preparing a production budget? (Points :5)
Budgeted unit sales
Budgeted raw materials
Beginning finished goodsunits
Ending finished goodsunits
Question 13. 13. (TCO 7) A company budgetedunit sales of 102,000 units for January, 2008 and 120,000 units forFebruary, 2008. The company has a policy of having an inventory ofunits on hand at the end of each month equal to 30% of next month'sbudgeted unit sales. If there were 30,600 units of inventory onhand on December 31, 2007, how many units should be produced inJanuary, 2008 in order for the company to meet its goals? (Points :5)
107,400 units
102,000 units
96,600 units
138,000 units
Question 14. 14. (TCO 8) A variance thatresults from expected economic conditions that do not materializeis called what? (Points : 5)
Sales variance
Planning variance
Economic variance
Material variance
Question 15. 15. (TCO 9) A static budget isappropriate for _____.
(Points : 5)
variable overhead costs
direct materials costs
fixed overhead costs
None of the above
Question 16. 16. (TCO 9) If the activity levelincreases 10%, total variable costs will _____.
(Points : 5)
remain the same
increase by more than10%
decrease by less than10%
increase 10%
Question 17. 17. (TCO 9) Using the high-lowmethod, what is the fixed cost for the following information?
Month
Miles
Total Cost
January
80,000
$96,000
February
50,000
$80,000
March
70,000
$94,000
April
90,000
$130,000
(Points : 5)
$17,500
$36,000
$14,000
$50,000
Question 18. 18. (TCO 10) Which of thefollowing statements regarding budget reports is incorrect? (Points: 5)
The cost of budget reportsshould not outweigh the benefits.
Budget reports are used forplanning, control, and information.
Reports prepared for uppermanagement typically have fewer details than reports prepared forlower level managers.
Reports are prepared morefrequently for upper management than for lower level managers.
(TCO 6) Hyde Inc. is comparing several alternative capitalbudgeting projects as shown below.
Projects | A | B | C |
Initial Investment | $110,000 | $90,000 | $50,000 |
Present value of cash inflows | $100,000 | $100,000 | $60,000 |
Using the profitability index, rank the projects, starting with themost attractive. (Points : 5) A, C, B
A, B, C
C, A, B
C, B, A
$1,387 $65,375 $5,161 |
Budgeted raw materials Beginning finished goodsunits Ending finished goodsunits |
102,000 units 96,600 units 138,000 units |
Planning variance Economic variance Material variance |
direct materials costs fixed overhead costs None of the above |
increase by more than10% decrease by less than10% increase 10% |
$36,000 $14,000 $50,000 |
Budget reports are used forplanning, control, and information. Reports prepared for uppermanagement typically have fewer details than reports prepared forlower level managers. Reports are prepared morefrequently for upper management than for lower level managers. |
Related questions
1. (TCO 3) The Mixing Department is the thirddepartment in the MZS Inc. factory. During January, there were4,000 units of beginning inventory in the Mixing Department, and80,000 units were transferred in from the prior process. There were8,000 units in ending inventory. The transferred-in cost in thebeginning inventory was $170,000 and there was $600,000 intransferred-in cost during the month.
What is the cost per equivalent unit for transferred-incost? (Points : 25)
| Question 2. 2. (TCO 4) Assume that we aremanufacturing a product and assume that the sales price per unit is$80, the variable cost is $20 per unit, and the fixed cost is$90,000; a) how many units would we need to sell to break even? b)How many units would we need to sell to earn a profit of $120,000?c) How many units do we need to sell to double that profit to$240,000? D) Why didn't the number of units double from Part B toPart C? (Points : 25) |
| Question 3. 3. (TCO 5) Sivan Co. manufacturesand sells one product. For the year, they started with no openinginventory; produced 100,000 units, but only sold 70,000 units. Theselling price per each unit is $60. |
| Question 4. 4. (TCO 6) At Long Co., electricitycost starts with a minimum fixed cost, and after that, there is aperfectly variable expense. Using estimated machine hours: |
| Question 5. 5. (TCO 7) North Company produces asmall part that it uses in the production of its Product H. Thecompany's unit product cost for the part, based on a production of100,000 parts per year, is as follows: |
| Question 6. 6. (TCO 9) (TCO 9) Harry Corp buysequipment for $224,888 that will last for 9 years. The equipmentwill generate cash flows of $36,000 per year and will have nosalvage value at the end of its life. Ignore taxes. Use 10%required rate of return. |
| Question 7. 7. (TCO 10) Tanya Corp sells itsproducts on both credit and cash basis. Monthly sales are sold 20%for cash, 80% for credit. Credit sales are collected 65% in themonth of sale and 35% the following month. Salesfor the first quarter are BUDGETED as follows: January $200,000;February $300,000; March $300,000. |
Question 1
Billings Rail Company's sales for the next five months are asfollows:
| February | $175,000 |
| March | $160,000 |
| April | $145,000 |
| May | $135,000 |
| June | $130,000 |
Collection history for the company indicates that 50% of sales arecollected in the month of the sale, 38% is collected in thefollowing month, and 12% of sales are uncollectible.
How much are total budgeted cash receipts for April?
| A. | $123,800 | |
| B. | $154,300 | |
| C. | $72,500 | |
| D. | $133,300 |
2 points
Question 2
Budgeted sales (in units) for Falter Company are as follows:
| September | 50,000 units |
| October | 60,000 units |
| November | 55,000 units |
| December | 80,000 units |
The company wishes to have 20% of the next month's sales on hand atthe end of each month. How much is budgeted production forNovember?
| A. | 60,000 units | |
| B. | 61,000 units | |
| C. | 50,000 units | |
| D. | 71,000 units |
2 points
Question 3
Tech Star Company must maintain a minimum cash balance of$25,000. At the beginning of June the company's cash balance was$17,000. Budgeted cash receipts for June are $150,000 and budgetedcash disbursements are $201,000. Budgeted net income for Julytotals $11,000. During July, how much will Tech Star Company needto borrow?
| A. | $34,000 | |
| B. | $59,000 | |
| C. | $43,000 | |
| D. | $9,000 |
2 points
Question 4
A flexible budget takes into account the fact that whenproduction levels change
| A. | total fixed costs remain the same. | |
| B. | variable costs per unit changes. | |
| C. | fixed costs per unit remain the same. | |
| D. | None of the above is true. |
2 points
Question 5
Good Stuff Restaurant expects to make the following inventorypurchases:
| Month | Purchases |
| October | $80,000 |
| November | 100,000 |
| December | 160,000 |
During September, the restaurant purchased $72,000 of inventory.The restaurant typically pays for 25% of the inventory purchaseswithin the month of the purchase and 75% in the following month.Estimate the cash disbursements that will be made in November forpurchases related to inventory.
| A. | $95,000 | |
| B. | $100,000 | |
| C. | $115,000 | |
| D. | $85,000 |
2 points
Question 6
The produce division of Boot Ship Nutrition had invested capitalof $800,000 last year. If the minimum required rate of return is15% and last year's residual income was $60,000, how much wasNOPAT?
| A. | $60,000 | |
| B. | $120,000 | |
| C. | $400,000 | |
| D. | $180,000 |
2 points
Question 7
Fred's Fenders' cost of capital is 15%, and its required rate ofreturn is 12%. The company has noninterest-bearing currentliabilities of $50,000 and total assets of $350,000. Fred's NOPATis $100,000. How much is Fred's residual income?
| A. | $55,000 | |
| B. | $45,000 | |
| C. | $52,000 | |
| D. | $64,000 |
2 points
Question 8
Dingo is one of the divisions of Alpha Corporation. Dingo'sinvested capital is $500,000. Last year, Dingo recorded NOPAT of$80,000 on sales of $360,000. Which one of the following correctlycalculates return on investment using the two components of returnon investment?
| A. | $80,000 ÷ $360,000 | |
| B. | 1.39 Ã 11.5 | |
| C. | 22.22% Ã 0.72 | |
| D. | $80,000 ÷ ($500,000 - $80,000) |
2 points
Question 9
Residual income is NOPAT with an adjustment for
| A. | standard cost variances. | |
| B. | profit required for the level of investment in the investmentcenter. | |
| C. | taxes and depreciation. | |
| D. | accounting distortions. |
2 points
Question 10
The income that is used in the calculation of return oninvestment is usually
| A. | EBIT (earnings before interest and taxes). | |
| B. | net income as defined by GAAP. | |
| C. | net income plus depreciation expense. | |
| D. | NOPAT (net operating profit after taxes). |
Question 9
Tech Star Company must maintain a minimum cash balance of$25,000. At the beginning of June the company's cash balance was$17,000. Budgeted cash receipts for June are $150,000 and budgetedcash disbursements are $201,000. Budgeted net income for Julytotals $11,000. During July, how much will Tech Star Company needto borrow?
| A. | $43,000 | |
| B. | $59,000 | |
| C. | $9,000 | |
| D. | $34,000 |
Question 11
Which of the following would most likely be the present value ofa 5 year annuity of $5,000 per year (assuming a positive discountrate)?
| A. | $5,000 | |
| B. | $18,000 | |
| C. | $25,000 | |
| D. | $2,000 |
2 points
Question 12
A $600,000 investment is expected to generate cash flows of$120,000 per year for each of the next six years. What is theinvestment's payback period?
| A. | 2.50 years. | |
| B. | 6.00 years. | |
| C. | 4.00 years. | |
| D. | 5.00 years. |
2 points
Question 13
Maude Company's required rate of return on capital budgetingprojects is 9%. The company is considering an investment whichwould yield a cash flow of $12,000 per year for five years.Ignoring taxes, what is the most that the company would be willingto invest in this project?
| A. | $38,994 | |
| B. | $60,000 | |
| C. | $46,674 | |
| D. | $55,046 |
2 points
Question 14
Melton Company's required rate of return on capital budgetingprojects is 16%. The company is considering an investment whichwould yield an after-tax cash flow of $30,000 in four years. Whatis the most that the company would be willing to invest in thisproject?
| A. | $10,721 | |
| B. | $54,318 | |
| C. | $83,946 | |
| D. | $16,569 |
2 points
Question 15
A proposed project will cost $600,000 and will provide operatingcash flows of $150,000 in Year 1, $300,000 in Year 2, $500,000 inYear 3The company's hurdle rate is 15%. How much is the net presentvalue of the project?
| A. | $23,013 | |
| B. | $66,373 | |
| C. | $86,020 | |
| D. | $50,000 |
