Acct 5200Chapter 22 Handout Questions
1. Assume your goal in life is to retire with $2,800,000. How much would you need to save at the end of
each year if interest rates average 10% and you have a 30-year work life? (Round the final answer to the
nearest whole dollar.)
A) $9333
B) $17,022
C) $186,667
D) $160,464
2. Morrow Cleaners has been considering the purchase of an industrial dry-cleaning machine. The
existing machine is operable for three more years and will have a zero disposal price. If the machine is
disposed now, it may be sold for $170,000. The new machine will cost $360,000 and an additional cash
investment in working capital of $170,000 will be required. The new machine will reduce the average
amount of time required to wash clothing and will decrease labor costs. The investment is expected to net
$130,000 in additional cash inflows during the first year of acquisition and $290,000 each additional year
of use. The new machine has a three-year life, and zero disposal value. These cash flows will generally
occur throughout the year and are recognized at the end of each year. Income taxes are not considered in
this problem. The working capital investment will not be recovered at the end of the asset’s life.
What is the net present value of the investment, assuming the required rate of return is 6%? Would the
company want to purchase the new machine?
A) $264,290; yes
B) $243,489.592; yes
C) $($243,489.592); no
D) $($264,290); no
3. Clayton Hospital has been considering the purchase of a new x-ray machine. The existing machine is
operable for three more years and will have a zero disposal price. If the machine is disposed now, it may
be sold for $170,000. The new machine will cost $700,000 and an additional cash investment in working
capital of $115,000 will be required. The new machine will reduce the average amount of time required to
take the x-rays and will allow an additional amount of business to be done at the hospital. The
investment is expected to net $150,000 in additional cash inflows during the year of acquisition and
$180,000 each additional year of use. The new machine has a five-year life, and zero disposal value. These
cash flows will generally occur throughout the year and are recognized at the end of each year. Income
taxes are not considered in this problem. The working capital investment will not be recovered at the end
of the asset’s life.
What is the net present value of the investment, assuming the required rate of return is 9%? Would the
hospital want to purchase the new machine? If PV of $1 at 9% is:
Year
PV
1
.917
2
.842
3
.772
4
.708
5
.650
a)
b)
c)
d)
(27,510); no
117,000; no
27,510, yes
117,000’ yes
4. The Comil Corporation recently purchased a new machine for its factory operations at a cost of
$328,325. The investment is expected to generate $115,000 in annual cash flows for a period of four years.
The required rate of return is 13%. The old machine has a remaining life of four years. The new machine
is expected to have zero value at the end of the four-year period. The disposal value of the old machine at
the time of replacement is zero. What is the internal rate of return?
A) 12%
B) 13%
C) 14%
D) 15%
5. Network Service Center is considering purchasing a new computer network for $82,000. It will require
additional working capital of $13,000. Its anticipated eight-year life will generate additional client
revenue of $33,000 annually with operating costs, excluding depreciation, of $15,000. At the end of eight
years, it will have a salvage value of $9,500 and return $5,000 in working capital. Taxes are not
considered.
Required:
a. If the company has a required rate of return of 14%, what is the net present value of the proposed
investment?
b.
What is the internal rate of return?
6. EIF Manufacturing Company needs to overhaul its drill press or buy a new one. The facts have been
gathered, and they are as follows:
Purchase Price, New
Current book value
Overhaul needed now
Annual cash operating costs
Current salvage value
Salvage value in five years
Required:
Current Machine New Machine
$88,000
$110,000
33,000
44,000
77,000
44,000
22,000
5,500
22,000
Which alternative is the most desirable with a current required rate of return of 20%? Show
computations, and assume no taxes.
7. Supply the missing data for each of the following proposals:
Initial investment
Annual net cash inflow
Life, in years
Salvage value
Payback period in years
Internal rate of return
Proposal A
(a)
$60,000
10
$0
(b)
12%
Proposal B
$62,900
(c)
6
$10,000
(d)
24%
Proposal C
$226,000
(e)
10
$0
5.65
(f)
8. Book & Bible Bookstore desires to buy a new coding machine to help control book inventories. The
machine sells for $36,586 and requires working capital of $4,000. Its estimated useful life is five years and
will have a salvage value of $4,000. Recovery of working capital will be $4,000 at the end of its useful life.
Annual cash savings from the purchase of the machine will be $10,000.
Required:
a. Compute the net present value at a 14% required rate of return.
b. Compute the internal rate of return.
c.
Determine the payback period of the investment.
9. Griffith Vehicle has received three proposals for its new vehicle-painting machine. Information on
each proposal is as follows:
Initial investment in equipment
Working capital needed
Annual cash saved by operations:
Year 1
Year 2
Year 3
Year 4
Salvage value end of year:
Year 1
Year 2
Year 3
Year 4
Working capital returned
Proposal X Proposal Y Proposal Z
$240,000
$150,000
$190,000
0
0
10,000
80,000
80,000
80,000
80,000
50,000
42,000
46,000
24,000
80,000
80,000
80,000
80,000
100,000
80,000
40,000
10,000
0
80,000
60,000
40,000
20,000
0
60,000
50,000
30,000
15,000
10,000
Required:
Determine each proposal’s payback.
10. Cedile Trailer Supply has received three proposals for its new trailer assembly line. Information on
each proposal is as follows:
Initial investment in equipment
Working capital needed
Annual cash saved by operations:
Year 1
Year 2
Year 3
Proposal X Proposal Y Proposal Z
$180,000
$140,000
$145,000
0
0
15,000
60,000
60,000
60,000
60,000
50,000
35,000
60,000
60,000
60,000
Year 4
Salvage value end of year:
Year 1
Year 2
Year 3
Year 4
Working capital returned:
Required:
Determine each proposal’s payback.
60,000
10,000
60,000
30,000
25,000
20,000
15,000
0
25,000
20,000
15,000
10,000
0
45,000
40,000
35,000
25,000
15,000
Acct 5200
Chapter 23 Handout Questions
1.
Axelia Corporation has two divisions, Refining and Extraction. The company’s primary product
is Luboil Oil. Each division’s costs are provided below:
Extraction:
Refining:
Variable costs per barrel of oil
Fixed costs per barrel of oil
Variable costs per barrel of oil
Fixed costs per barrel of oil
$14
$5
$27
$31
The Refining Division has been operating at a capacity of 40,200 barrels a day and usually purchases
25,100 barrels of oil from the Extraction Division and 15,600 barrels from other suppliers at $58 per barrel.
What is the transfer price per barrel from the Extraction Division to the Refining Division, assuming the
method used to place a value on each barrel of oil is 180% of variable costs?
A) $25.20
B) $34.20
C) $77.00
D) $138.60
2.
Axelia Corporation has two divisions, Refining and Extraction. The company’s primary product
is Luboil Oil. Each division’s costs are provided below:
Extraction:
Refining:
Variable costs per barrel of oil
Fixed costs per barrel of oil
Variable costs per barrel of oil
Fixed costs per barrel of oil
$10
$8
$26
$38
The Refining Division has been operating at a capacity of 40,300 barrels a day and usually purchases
25,400 barrels of oil from the Extraction Division and 15,100 barrels from other suppliers at $64 per barrel.
What is the transfer price per barrel from the Extraction Division to the Refining Division, assuming the
method used to place a value on each barrel of oil is 120% of full costs?
A) $18.00
B) $21.60
C) $56.00
D) $100.80
3.
Axelia Corporation has two divisions, Refining and Extraction. The company’s primary product
is Luboil Oil. Each division’s costs are provided below:
Extraction:
Refining:
Variable costs per barrel of oil
Fixed costs per barrel of oil
Variable costs per barrel of oil
Fixed costs per barrel of oil
$16
$9
$26
$38
The Refining Division has been operating at a capacity of 40,900 barrels a day and usually purchases
25,600 barrels of oil from the Extraction Division and 15,400 barrels from other suppliers at $64 per barrel.
Assume 260 barrels are transferred from the Extraction Division to the Refining Division for a transfer
price of $26 per barrel. The Refining Division sells the 260 barrels at a price of $220 each to customers.
What is the operating income of both divisions together?
A) $13,520
B) $34,060
C) $16,380
D) $50,440
4.
Branded Shoe Company manufactures only one type of shoe and has two divisions, the Stitching
Division and the Polishing Division. The Stitching Division manufactures shoes for the Polishing
Division, which completes the shoes and sells them to retailers. The Stitching Division “sells”
shoes to the Polishing Division. The market price for the Polishing Division to purchase a pair of
shoes is $48. (Ignore changes in inventory.) The fixed costs for the Stitching Division are assumed
to be the same over the range of 40,000-101,000 units. The fixed costs for the Polishing Division
are assumed to be $17 per pair at 101,000 units.
Stitching’s costs per pair of shoes are:
Direct materials
$11
Direct labor
$9
Variable overhead
$7
Division fixed costs
$5
Polishing’s costs per completed pair of shoes are:
Direct materials
$20
Direct labor
$9
Variable overhead
$8
Division fixed costs
$18
What is the market-based transfer price per pair of shoes from the Stitching Division to the Polishing
Division?
A) $23
B) $36
C) $48
D) $59
5.
Branded Shoe Company manufactures only one type of shoe and has two divisions, the Stitching
Division and the Polishing Division. The Stitching Division manufactures shoes for the Polishing
Division, which completes the shoes and sells them to retailers. The Stitching Division “sells”
shoes to the Polishing Division. The market price for the Polishing Division to purchase a pair of
shoes is $52. (Ignore changes in inventory.) The fixed costs for the Stitching Division are assumed
to be the same over the range of 40,000-103,000 units. The fixed costs for the Polishing Division
are assumed to be $24 per pair at 103,000 units.
Stitching’s costs per pair of shoes are:
Direct materials
$20
Direct labor
$18
Variable overhead
$16
Division fixed costs
$14
Polishing’s costs per completed pair of shoes are:
Direct materials
$20
Direct labor
$10
Variable overhead
$5
Division fixed costs
$18
What is the transfer price per pair of shoes from the Stitching Division to the Polishing Division if the
method used to place a value on each pair of shoes is 175% of variable costs?
A) $36.75
B) $66.50
C) $94.50
D) $7.00
6.
Branded Shoe Company manufactures only one type of shoe and has two divisions, the Stitching
Division and the Polishing Division. The Stitching Division manufactures shoes for the Polishing
Division, which completes the shoes and sells them to retailers. The Stitching Division “sells”
shoes to the Polishing Division. The market price for the Polishing Division to purchase a pair of
shoes is $46. (Ignore changes in inventory.) The fixed costs for the Stitching Division are assumed
to be the same over the range of 40,000-101,000 units. The fixed costs for the Polishing Division
are assumed to be $14 per pair at 101,000 units.
Stitching’s costs per pair of shoes are:
Direct materials
$12
Direct labor
$10
Variable overhead
$8
Division fixed costs
$6
Polishing’s costs per completed pair of shoes are:
Direct materials
$15
Direct labor
$6
Variable overhead
$6
Division fixed costs
$18
What is the transfer price per pair of shoes from the Stitching Division to the Polishing Division if the
transfer price per pair of shoes is 125% of full costs?
A) $15.00
B) $27.50
C) $37.50
D) $45.00
Acct 5200
Chapter 20 Balanced Scorecard: Quality and Time
Chapter 20 Handout Questions
1) Conformance quality ________.
A) is the first step of a quality management system such as ISO
9000
B) is the performance of a product or service according to design
and product specifications
C) is making the product according to design, engineering, and
manufacturing specifications
D) focuses on how a product meets customer needs and wants
2) The costs of quality ________.
A) are the costs incurred to enhance large scale production
B) are the costs incurred to prevent the production of a low
quality product
C) are costs incurred to company due to defective and low quality
product
D) include warranty costs, costs of normal spoilage, costs of
abnormal spoilage, and scrap costs
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3) Costs incurred in precluding the production of products that
do not conform to specifications are ________.
A) prevention costs
B) appraisal costs
C) internal failure costs
D) external failure costs
4) Appraisal costs ________.
A) are costs incurred to prevent the production of products that
do not conform to specifications
B) are costs incurred to detect which of the individual units of
products do not conform to specifications
C) are costs incurred on defective products before they are
shipped to customers
D) are costs incurred on defective products after they have been
shipped to customers
5) Costs incurred on defective products before being shipped to
customers are ________.
A) prevention costs
B) appraisal costs
C) internal failure costs
D) external failure costs
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6) Design engineering is an example of ________.
A) prevention costs
B) appraisal costs
C) internal failure costs
D) external failure costs
7) Spoilage is an example of ________.
A) prevention costs
B) appraisal costs
C) internal failure costs
D) external failure costs
Answer the following questions using the information below:
Morrow Corp manufactures expensive tables. Its varnishing
department is fully automated and requires substantial inspection
to keep the machines operating properly. An improperly
varnished table is very expensive to correct. Inspection hours for
the 5,000 tables varnished in September totaled 1,500 hours by 8
employees. Eight quarts of varnish were used, on average, for
each table. The standard amount of varnish per table is nine
quarts. The cost of inspection for September was equal to the
budgeted amount of $40,000.
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8) The $40,000 represents a(n) ________.
A) activity cost pool
B) possible cost allocation base
C) internal failure cost
D) work-in-process control
9) What is the inspection cost per unit?
A) $30.40
B) $8.00
C) $9.00
D) $4,750
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Answer the following questions using the information below:
Atlanta Products has a budget of $900,000 in 2021 for prevention
costs. If it decides to automate a portion of its prevention
activities, it will save $80,000 in variable costs. The new method
will require $40,000 in training costs and $100,000 in annual
equipment costs. Management is willing to adjust the budget for
an amount up to the cost of the new equipment. The budgeted
production level is 150,000 units.
Appraisal costs for the year are budgeted at $600,000. The new
prevention procedures will save appraisal costs of $50,000.
Internal failure costs average $15 per failed unit of finished goods.
The internal failure rate is expected to be 3% of all completed
items. The proposed changes will cut the internal failure rate by
one-third. Internal failure units are destroyed. External failure
costs average $54 per failed unit. The company’s average external
failures average 3% of units sold. The new proposal will reduce
this rate by 50%. Assume all units produced are sold and there
are no ending inventories.
10) What is the net change in the budget for prevention costs if
the procedures are automated in 2021? Will management agree
with the changes?
A) $60,000 decrease, yes
B) $60,000 increase, yes
C) $140,000 increase, no
D) $80,000 decrease, yes
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11) How much will appraisal costs change assuming the new
prevention methods reduce material failures by 40% in the
appraisal phase?
A) $140,000 decrease
B) $60,000 increase
C) $50,000 decrease
D) $22,500 decrease
12) How much will internal failure costs change if the internal
product failures are reduced by 1/3 with the new procedures?
A) $22,500 decrease
B) $67,500 decrease
C) $500,000 decrease
D) $750,000 decrease
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13) How much do external failure costs change if all changes are
as anticipated with the new prevention procedures? Assume all
units produced are sold and there are no ending inventories.
A) $121,500 decrease
B) $121,500 increase
C) $243,000 decrease
D) None of these answers is correct.
14) Ventaz Corp manufactures glasses. The manufacturing cycle
efficiency is 70%. What is its waiting time if the manufacturing
lead time is 120 minutes per keyboard?
A) 38.00 minutes
B) 42.00 minutes
C) 48.00 minutes
D) 36.00 minutes.
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15) Alex is injured and rushed to Care Hospitals for treatment. He
spent 45 minutes at the hospital out of which he filled a form for
15 minutes, stood in the queue for 10 minutes, doctor treated him
for 15 minutes, and payment time was 5 minutes. What is the
service cycle efficiency for his visit?
A) 18.50%
B) 11.11%
C) 66.67%
D) 33.33%
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