MGAB03 Final Exam Review Questions
MGAB03 Final Exam Review Questions Chapter 7 1. A firm produces and sells two products, Alpha and Zeta. The following information is available relating to setup costs (a part of factory overhead): Product Alpha Product Zeta Units produced 250 20,000 Batch size (units) 10 500 Number of setups 25 40 Direct labour hours per unit 3 3 Total direct labour hours 750 60,000 Cost per setup $ 1,000 Total setup cost 65,000 Use of activity-based costing would allocate the following amounts of setup cost to each unit (rounded to nearest cent): Product Alpha Product Zeta (A) $3.21 $3.21 (B) $100.00 $2.00 (C) $130.00 $2.00 (D) $9.63 $9.63 (E) $40.00 $2.50 2. Baker Corporation operates two departments (G and H) and an office. All office expenses are allocated to the departments. The following information is available for August: Home Office Expenses Salaries Amortization Advertising
Total $30,000 20,000 40,000
Allocation Basis Number of employees Cost of goods sold Net sales
Item Dept. G Dept. H Total Number of employees 1,000 1,500 2,500 Net sales $325,000 $475,000 $800,000 Cost of goods sold $ 75,000 $125,000 $200,000 The amount of home office expenses that should be allocated to Department H for August is: (A) $35,750,
(B) $42,375,
(C) $54,250,
(D) $90,000,
(E) $600,000
Chapter 10 The following data apply to questions 1 and 2. Zeta Company budgets on an annual basis. The following beginning and ending inventory levels (in units) are planned for the fiscal year of July 1, 2012, through June 30, 2013. July 1, 2012 June 30, 2013 1 Raw material 40,000 10,000 Work in process 8,000 8,000 Finished goods 30,000 5,000 1
Three (3) units of raw material are needed to produce each unit of finished product. 3. If Zeta Company plans to sell 500,000 units during the 2012-2013 fiscal year, the number of units it would have to manufacture (production budget) during the year would be: (A) 475,000 b. (B) 480,000 (C) 500,000 (D) 505,000 4. If 450,000 finished units were to be manufactured during the 2012-2013 fiscal year by Zeta Company, the units of raw material needed (purchase budget) would be: (A) 1,320,000 (B) 1,330,000 (C) 1,350,000 (D). 1.360,000 The following data apply to questions 5–6. Information pertaining to Omega Company’s sales revenue forecast is presented in the following table: February March April Cash sales $160,000 $150,000 $120,000 Credit sales 300,000 400,000 280,000 Total sales $460,000 $550,000 $400,000 Omega’s Management estimates that five percent of credit sales are not collectible. Of the credit sales that are collectible, 60 percent are collected in the month of sale and the remainder in the month following the sale. Cost of purchases of inventory each month are 70 percent of the next month's projected total sales. All purchases of inventory are on account; 25 percent are paid in the month of purchase, and the remainder is paid in the month following the purchase.
5. Omega's budgeted total cash receipts in April would be: (A) $328,000. (B) $431,600. (C) $437,000.
(D) $448,000.
6. Omega’s budgeted total cash payments in March for inventory purchases would be: (A) $280,000. (B) $306,250. (C) $358,750. (D) $385,000. Chapter 4 Omega Industries uses ten units of Z each month in the production of scientific equipment. The unit cost to manufacturing one unit of Z is presented below. Direct materials $ 4,000 Materials handling (10% of direct materials cost) 400 Direct manufacturing labour 6,000 Indirect manufacturing (200% of direct labour) 12,000 Total manufacturing cost $22,400 Materials handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to indirect manufacturing cost. Omega’s annual indirect manufacturing cost budget is one-fourth variable and three-fourths fixed. Alpha Manufacturing, one of Omega’s reliable vendors, has offered to supply Zs at a unit price of $17,000. 7. If Omega purchases units of Z from Alpha the capacity Omega would have used to manufacture these parts would be idle. Should Omega purchase the units of Z from Alpha, the unit cost of Z would (A) increase by $3,600. (B) increase by $5,300. (C) decrease by $3,700. (D) decrease by $5,600. 8. Assume that Omega Manufacturing does not wish to commit to a rental agreement to rent all idle capacity but could use idle capacity to manufacture another product that would contribute $60,000 per month. If Omega elects to manufacture units of Z in order to maintain quality control, Omega’s opportunity cost is (A) $(53,000). (B) $(24,000). (C) $36,000. (D) $60,000.
Chapter 12 9. If income tax considerations are ignored, how is amortization expense used in the following capital budgeting techniques? IRR
NPV
Payback Period
AARR
(A) Excluded
Included
Included
Excluded
(B) Included
Excluded
Excluded
Included
(C) Excluded
Excluded
Excluded
Included
(D) Included
Included
Included
Excluded
10.Sasson, Inc. is considering a project that would have a ten-year life and would require a $2,000,000 investment in equipment. At the end of ten years, the project would terminate and the equipment would have no salvage value. The project would provide net income each year as follows: Sales Less: Variable Expenses Contribution Margin Less: Fixed Expenses Net Income
$2,000,000 $1,400,000 $ 600,000 $ 400,000 $ 200,000
All of the above items, except for depreciation of $200,000 a year, represent cash flows. The depreciation is included in the fixed expenses. The company's required rate of return is 12%. (Ignore income taxes in this problem.) Required: (A) What is the project's net present value? (B) What is the project's internal rate of return? (C) What is the project's payback period? (D) What is the project's simple rate of return?
Chapter 13 The Delta Manufacturing Company has two divisions in Ontario, Canada, Division One and Division Two. Currently, Division Two buys a part (10,000 units) from Division One for $16 per unit. Division One has purchased new equipment and wants to increase the price to Division Two to $18 per unit. The controller of Division Two claims that she cannot afford to go that high, as it will decrease the Division Two’s profit to near zero. Division Two can buy the part from an outside supplier for $16 per unit. The incremental costs per unit that Delta incurs to produce each unit are Division One’s variable costs of $12. Fixed costs per unit for Division One with the recent purchase of equipment are $5. 11.Division One has no alternative uses for its facilities. Should Division Two continue to buy from Division One or buy from the external supplier? Company as a whole Division Two only (A) Buy from Division One Buy from external supplier (B) Buy from external supplier Buy from Division One (C) Buy from Division One Buy from Division One (D) Buy from external supplier Buy from external supplier 12.If Delta would prefer to negotiate a transfer price between the divisions, what range of transfer prices would be used? (A) $12 - $18 (B) $12 - $17 (C) $12 - $16 (D) $16 - $18 13.If Division One could use its facilities for other manufacturing operations that would result in monthly cash operating savings of $45,000, what would be the advantage (disadvantage) to Delta? (A) $20,000 (B) $(25,000) (C) $25,000 (D) $5,000 14.If Division One has no alternative uses for its facilities and the external supplier drops the price to $11 per unit, what should be done from the point of view of Company as a whole Division Two only (A) Buy from Division One Buy from external supplier (B) Buy from external supplier Buy from Division One (C) Buy from Division One Buy from Division One (D) Buy from external supplier Buy from external supplier
15.Assume the Division Two is located in England rather than Ontario, Canada. The income tax rate used in England is 45%, whereas the effective income tax rate is 30% in Ontario. Which cost would be the best transfer price for the company as a whole (based upon original data)? (A) Variable cost of $12 (B) Market price of $16 (C) Full cost of $17 (D) The price that best promotes goal congruence. 16.Wyn Co. has an investment of $3,000,000, an income-to-revenue ratio of 4%, and an ROI of 12%. Its revenues are: (A) $360,000 (B) $9,000,000 (C) $1,440,000 (D) $12,000,000 17.Fusion Inc. has an RI of $180,000 and operating income of $500,000. If the required rate of return is 16%, the amount of investment is: (A) $320,000 (B) $3,125,000 (C) 8,000,000 (D) $2,000,000 18.What is Fusion’s ROI? (A) 5% (B) 10%
(C) 20%
(D) None of the above.
Total $30,000 20,000 40,000
Allocation Basis Number of employees Cost of goods sold Net sales
Item Dept. G Dept. H Total Number of employees 1,000 1,500 2,500 Net sales $325,000 $475,000 $800,000 Cost of goods sold $ 75,000 $125,000 $200,000 The amount of home office expenses that should be allocated to Department H for August is: (A) $35,750,
(B) $42,375,
(C) $54,250,
(D) $90,000,
(E) $600,000
Chapter 10 The following data apply to questions 1 and 2. Zeta Company budgets on an annual basis. The following beginning and ending inventory levels (in units) are planned for the fiscal year of July 1, 2012, through June 30, 2013. July 1, 2012 June 30, 2013 1 Raw material 40,000 10,000 Work in process 8,000 8,000 Finished goods 30,000 5,000 1
Three (3) units of raw material are needed to produce each unit of finished product. 3. If Zeta Company plans to sell 500,000 units during the 2012-2013 fiscal year, the number of units it would have to manufacture (production budget) during the year would be: (A) 475,000 b. (B) 480,000 (C) 500,000 (D) 505,000 4. If 450,000 finished units were to be manufactured during the 2012-2013 fiscal year by Zeta Company, the units of raw material needed (purchase budget) would be: (A) 1,320,000 (B) 1,330,000 (C) 1,350,000 (D). 1.360,000 The following data apply to questions 5–6. Information pertaining to Omega Company’s sales revenue forecast is presented in the following table: February March April Cash sales $160,000 $150,000 $120,000 Credit sales 300,000 400,000 280,000 Total sales $460,000 $550,000 $400,000 Omega’s Management estimates that five percent of credit sales are not collectible. Of the credit sales that are collectible, 60 percent are collected in the month of sale and the remainder in the month following the sale. Cost of purchases of inventory each month are 70 percent of the next month's projected total sales. All purchases of inventory are on account; 25 percent are paid in the month of purchase, and the remainder is paid in the month following the purchase.
5. Omega's budgeted total cash receipts in April would be: (A) $328,000. (B) $431,600. (C) $437,000.
(D) $448,000.
6. Omega’s budgeted total cash payments in March for inventory purchases would be: (A) $280,000. (B) $306,250. (C) $358,750. (D) $385,000. Chapter 4 Omega Industries uses ten units of Z each month in the production of scientific equipment. The unit cost to manufacturing one unit of Z is presented below. Direct materials $ 4,000 Materials handling (10% of direct materials cost) 400 Direct manufacturing labour 6,000 Indirect manufacturing (200% of direct labour) 12,000 Total manufacturing cost $22,400 Materials handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to indirect manufacturing cost. Omega’s annual indirect manufacturing cost budget is one-fourth variable and three-fourths fixed. Alpha Manufacturing, one of Omega’s reliable vendors, has offered to supply Zs at a unit price of $17,000. 7. If Omega purchases units of Z from Alpha the capacity Omega would have used to manufacture these parts would be idle. Should Omega purchase the units of Z from Alpha, the unit cost of Z would (A) increase by $3,600. (B) increase by $5,300. (C) decrease by $3,700. (D) decrease by $5,600. 8. Assume that Omega Manufacturing does not wish to commit to a rental agreement to rent all idle capacity but could use idle capacity to manufacture another product that would contribute $60,000 per month. If Omega elects to manufacture units of Z in order to maintain quality control, Omega’s opportunity cost is (A) $(53,000). (B) $(24,000). (C) $36,000. (D) $60,000.
Chapter 12 9. If income tax considerations are ignored, how is amortization expense used in the following capital budgeting techniques? IRR
NPV
Payback Period
AARR
(A) Excluded
Included
Included
Excluded
(B) Included
Excluded
Excluded
Included
(C) Excluded
Excluded
Excluded
Included
(D) Included
Included
Included
Excluded
10.Sasson, Inc. is considering a project that would have a ten-year life and would require a $2,000,000 investment in equipment. At the end of ten years, the project would terminate and the equipment would have no salvage value. The project would provide net income each year as follows: Sales Less: Variable Expenses Contribution Margin Less: Fixed Expenses Net Income
$2,000,000 $1,400,000 $ 600,000 $ 400,000 $ 200,000
All of the above items, except for depreciation of $200,000 a year, represent cash flows. The depreciation is included in the fixed expenses. The company's required rate of return is 12%. (Ignore income taxes in this problem.) Required: (A) What is the project's net present value? (B) What is the project's internal rate of return? (C) What is the project's payback period? (D) What is the project's simple rate of return?
Chapter 13 The Delta Manufacturing Company has two divisions in Ontario, Canada, Division One and Division Two. Currently, Division Two buys a part (10,000 units) from Division One for $16 per unit. Division One has purchased new equipment and wants to increase the price to Division Two to $18 per unit. The controller of Division Two claims that she cannot afford to go that high, as it will decrease the Division Two’s profit to near zero. Division Two can buy the part from an outside supplier for $16 per unit. The incremental costs per unit that Delta incurs to produce each unit are Division One’s variable costs of $12. Fixed costs per unit for Division One with the recent purchase of equipment are $5. 11.Division One has no alternative uses for its facilities. Should Division Two continue to buy from Division One or buy from the external supplier? Company as a whole Division Two only (A) Buy from Division One Buy from external supplier (B) Buy from external supplier Buy from Division One (C) Buy from Division One Buy from Division One (D) Buy from external supplier Buy from external supplier 12.If Delta would prefer to negotiate a transfer price between the divisions, what range of transfer prices would be used? (A) $12 - $18 (B) $12 - $17 (C) $12 - $16 (D) $16 - $18 13.If Division One could use its facilities for other manufacturing operations that would result in monthly cash operating savings of $45,000, what would be the advantage (disadvantage) to Delta? (A) $20,000 (B) $(25,000) (C) $25,000 (D) $5,000 14.If Division One has no alternative uses for its facilities and the external supplier drops the price to $11 per unit, what should be done from the point of view of Company as a whole Division Two only (A) Buy from Division One Buy from external supplier (B) Buy from external supplier Buy from Division One (C) Buy from Division One Buy from Division One (D) Buy from external supplier Buy from external supplier
15.Assume the Division Two is located in England rather than Ontario, Canada. The income tax rate used in England is 45%, whereas the effective income tax rate is 30% in Ontario. Which cost would be the best transfer price for the company as a whole (based upon original data)? (A) Variable cost of $12 (B) Market price of $16 (C) Full cost of $17 (D) The price that best promotes goal congruence. 16.Wyn Co. has an investment of $3,000,000, an income-to-revenue ratio of 4%, and an ROI of 12%. Its revenues are: (A) $360,000 (B) $9,000,000 (C) $1,440,000 (D) $12,000,000 17.Fusion Inc. has an RI of $180,000 and operating income of $500,000. If the required rate of return is 16%, the amount of investment is: (A) $320,000 (B) $3,125,000 (C) 8,000,000 (D) $2,000,000 18.What is Fusion’s ROI? (A) 5% (B) 10%
(C) 20%
(D) None of the above.
