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**Question 1** (2.5 points)

Kinsi Corporation manufactures three different products. All five of these products must pass through a stamping machine in its fabrication department. This machine is Kinsi’s constrained resource. Kinsi would make the most profit if it produces the product that:

Question 1 options:

uses the lowest number of stamping machine hours.

generates the highest contribution margin per unit.

uses the highest number of stamping machine hours.

generates the highest contribution margin per stamping machine hour.

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**Question 2** (2.5 points)

The Cowboy’s Company needs 20,000 units of a certain part to use in its production cycle. Cowboys is considering the possibility of buying the part from Dolphins Company instead of making it. Sixty percent of the fixed overhead will remain regardless of the decision made. Accounting records indicate the following data: Cost to Cowboys to make the part: Direct materials, $4 Direct labor, $16 Variable factory overhead, $18 Fixed factory overhead, $10 Cost to buy the part for Dolphins Company, $36 Which decision should Cowboys make & what is the total cost savings that would result?

Question 2 options:

Buy, $80,000

Make, $120,000

Make, $80,000

Buy, $120,000

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**Question 3** (2.5 points)

Company X has gathered the following data for it’s three product lines, X, Y, and Z.

Product XProduct YProduct ZContribution Margin$10,000$12,000$22,500Units Produced1,0002,4001,800Labor hours required/unit445Machine hours required/unit445

If Company X has a limited supply of labor hours, which product(s) should it prefer most?

Question 3 options:

Product Y

Product X

Product Z

Products X and Z

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**Question 4** (2.5 points)

Which of the following statements is true

Question 4 options:

The accounting rate of return method ignores the time value of money concept

The payback period ignores the time value of money concept and ignores cash flows received after the payback period

The net present value method considers the time value of concept and also considers cash flows during the entire life of the investment project

When the above methods yield conflicting results, the decision indicated by the net present value method should be considered

All of the above are true

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**Question 5** (2.5 points)

A company uses the net present value method to evaluate planned capital expenditures. Everything else being equal, the lower the required rate of return they use, the ____ will be the net present value.

Question 5 options:

identical

lower

can’t be determined

higher

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**Question 6** (2.5 points)

The Sip & Dip Donut company is considering the acquisition of a new automatic donut dropper for $600,000. The machine will have a six-year life and will produce before tax cash savings of $200,000 each year. The asset is to be depreciated using the straight-line method with no salvage value. The company’s tax rate is 40 percent.The after-tax net cash inflow on the investment is

Question 6 options:

$120,000.

$ 80,000.

$160,000.

$200,000.

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**Question 7** (2.5 points)

The Sip & Dip Donut company is considering the acquisition of a new automatic donut dropper for $600,000. The machine will have a six-year life and will produce before tax cash savings of $200,000 each year. The asset is to be depreciated using the straight-line method with no salvage value. The company’s tax rate is 40 percent.The payback period is

Question 7 options:

3 years

7.50 years

3.75 years

5 years

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**Question 8** (2.5 points)

Equipment is purchased at a cost of $39,000. As a result, annual cash revenues will increase by $20,000; annual cash operating expenses will increase by $7,000; straight-line depreciation is used; the asset has a ten-year life; the salvage value is $3,000. Assuming a tax bracket of 34%, determine the accounting rate of return? (round to the nearest %)

Question 8 options:

13 percent

16 percent

33 percent

27 percent

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**Question 9** (2.5 points)

Shirt Co. wants to purchase a new cutting machine for its sewing plant. The investment is expected to generate annual net cash inflows of $30,000, have a useful life of 8 years, and an estimated salvage value of $10,000. If Shirt Co. has a required rate of return of 12%, the maximum amount they will be willing to spend for this machine is

Question 9 options:

$300,000

$198,720

$153,080

$149,040

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**Question 10** (2.5 points)

Darlington Company is considering investing in an equipment, which will increase yearly cash revenues by $65000, and yearly cash expenses to operate the equipment by $30,000. The asset will cost $200,000, and will last 8 years, with a salvage value of $40,000. Assuming a tax rate of 39%, determine the net present value of this asset, if the company requires a 10% return on investments.

Question 10 options:

$5,405

($25,804.75)

$174,195.25

($5,405)

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**Question 11** (2.5 points)

A company uses the net present value methodology in making capital expenditure decisions. In making a decision where they have to choose among two pieces of equipment, which of the following pieces of information will be considered irrelevant

Question 11 options:

Initial cost of each machine

Estimated life of each machine

Salvage value of each machine

Cash flow generated by each machine during the estimated life of the machine

All of the above are relevant

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**Question 12** (2.5 points)

Baton Rouge Company is considering purchasing new equipment which will cost $950,000. This equipment is expected to have a useful life of 15 years, have a salvage value of $50,000 and is expected to have an annual net cash inflow (before taxes) of $80,000. Assume the company is in the 34% tax bracket.

What is Baton Rouge’s annual net cash inflow (after taxes)?

Question 12 options:

$13,200

$52,800

$73,200

$112,800

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**Question 13** (2.5 points)

Co. X has gathered the following estimates:

**Machine A**

**Machine B**

Cost

$600,000

$600,000

Life

5 yrs

5 yrs

Net Cash Inflow:

Yr 1

$100,000

$500,000

Yr 2

$200,000

$400,000

Yr 3

$300,000

$300,000

Yr 4

$400,000

$200,000

Yr 5

$500,000

$100,000

Co. X uses the net present value method to evaluate capital expenditures. Which of the following two machines has the higher net present value?Question 13 options:

Cannot be determined from the information provided

Machine B

They are the same

Machine A

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**Question 14** (2.5 points)

Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During November, they incurred joint processing costs of $420,000. Production and sales value information for November are as follows:

**Product**

**Cases**

**Selling Price/Case**

**Additional Costs/Case**

Catsup

100,000

$10

$2

Tomato Juice

150,000

$8

$1

Canned Tomatoes

250,000

$12

$3

The joint cost allocated to Canned Tomatoes (using the net realizable value method) is (round to the closest $)Question 14 options:

$81,942

$230,496

$107,562

$210,000

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**Question 15** (2.5 points)

Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During November, they incurred joint processing costs of $420,000. Production and sales value information for November are as follows:

**Product**

**Cases**

**Selling Price/Case**

**Additional Costs/Case**

Catsup

100,000

$10

$2

Tomato Juice

150,000

$8

$1

Canned Tomatoes

250,000

$12

$3

Red Sauce Canning Company is considering an option to further refine Catsup. By incurring an additional cost of $60,000, they will be able to increase their selling price of Catsup to $11.20 per case. Determine the incremental advantage (disadvantage) of this option? (round to the closest $)Question 15 options:

$60,000

$260,000

($260,000)

($60,000)

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**Question 16** (2.5 points)

Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During November, they incurred joint processing costs of $420,000. Production and sales value information for November are as follows:

**Product**

**Cases**

**Selling Price/Case**

**Additional Costs/Case**

Catsup

100,000

$10

$2

Tomato Juice

150,000

$8

$1

Canned Tomatoes

250,000

$12

$3

If the company has a philosophy of marking up their products 20% over cost, the selling price per case of Tomato Juice should be (using the net realizable value method) (round to 2 decimal places)Question 16 options:

$7.00

$2.06

$1.00

$0.86

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**Question 17** (2.5 points)

**Product**

**Cases**

**Selling Price/Case**

**Additional Costs/Case**

Catsup

100,000

$10

$2

Tomato Juice

150,000

$8

$1

Canned Tomatoes

250,000

$12

$3

The unit cost per case of Canned Tomatoes (using the physical volume method) is (round to 2 decimal places)

Question 17 options:

$3.84

$0.84

$2.84

$1.84

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**Question 18** (2.5 points)

A cost that is incurred between the split-off point and the point of sale is known as a:

Question 18 options:

Unit cost

Split-off cost

Separable cost

Joint cost

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**Question 19** (2.5 points)

Company X uses a joint processing system for it’s 2 products Y & Z. As a result of using the physical volume method of joint cost allocation instead of the net realizable value method, they have overstated the unit cost for product Z and understated the unit cost for product Y. If Company X prepares separate financial statements for each of the 2 products, which of the following statements is true

Question 19 options:

There will be no effect on the Income Statements for either Y or Z

COGS for product Z will be overstated

Gross Margin for product Z will be overstated

Net Income for product Y will be overstated

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**Question 20** (2.5 points)

Zell Company derives two products, Great and Grand, from a single process. Great and Grand can be sold either as is or after further processing. Costs and selling prices are as follows:

**Product**

**Gallons**

**Selling Price (as is)**

**Additional Processing Costs**

**Selling price (after processing)**

Great

30,000

$8/gallon

$50,000

$10/gallon

Grand

20,000

$6/gallon

$80,000

$9.50/gallon

Which of the following products should Zell Company process further?Question 20 options:

neither Great nor Grand

Grand only

Great only

both Great and Grand

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