Quiz Question 1 (2.5 points) Kinsi Corporation manufactures three different prod
ID: 2470132 • Letter: Q
Question
Quiz
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:
Make, $80,000
Buy, $80,000
Buy, $120,000
Make, $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.
If Company X has a limited supply of labor hours, which product(s) should it prefer most?
Question 3 options:
Product X
Products X and Z
Product Z
Product Y
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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:
higher
can't be determined
lower
identical
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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.
$200,000.
$160,000.
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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:
3.75 years
7.50 years
5 years
3 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:
16 percent
13 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:
$153,080
$198,720
$300,000
$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)
$174,195.25
$5,405
($25,804.75)
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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)
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:
Machine B
Machine A
They are the same
Cannot be determined from the information provided
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Question 14 (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 joint cost allocated to Canned Tomatoes (using the net realizable value method) is (round to the closest $) Question 14 options:
$107,562
$210,000
$230,496
$81,942
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Question 15 (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
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)
$60,000
$260,000
($260,000)
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Question 16 (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
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:
$1.00
$7.00
$0.86
$2.06
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Question 17 (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 unit cost per case of Canned Tomatoes (using the physical volume method) is (round to 2 decimal places)
Question 17 options:
$1.84
$3.84
$2.84
$0.84
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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:
Gross Margin for product Z will be overstated
Net Income for product Y will be overstated
COGS for product Z will be overstated
There will be no effect on the Income Statements for either Y or Z
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Question 20 (2.5 points)
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:
Grand only
Great only
neither Great nor Grand
both Great and Grand
Note: It is recommended that you save your response as you complete each question.Explanation / Answer
1.
Generates the highest contribution margin per stamping machine hour.
2.
If the part is bought,
Variable cost saved per unit = $4 + $16 + $18 = $38 per unit
Total variable cost saved = $38 * 20,000 = $760,000
Avoidable fixed costs = $10 * 40% * 20,000 = $80,000
Total cost to buy the part = $36 * 20,000 = $720,000
Net savings in buying the product = $760,000 + $80,000 - $720,000 = $120,000
Hence, answer is Buy, $120,000
3.
Product X
Product Y
Product Z
Contribution Margin
$10,000
$12,000
$22,500
Units Produced
1,000
2,400
1,800
Contribution margin per unit
$10.00
$5.00
$12.50
Labor hours required/unit
4
4
5
Contribution margin per labor hour
$2.50
$1.25
$2.50
Product X and Z have highest contribution margin per unit. Hence, they should be preferred
Answer is Product X and Z.
4.
All of the above are true.
5.
Higher
6.
After tax cash flow = $200,000 * (1-0.40) = $120,000
Annual depreciation = $600,000/6 = $100,000
Tax savings on depreciation = $100,000 * 0.40 = $40,000
After tax net cash flow = $120,000 + $40,000 = $160,000
7.
Payback period = Initial investment / Annual cash flow = $600,000/$160,000 = 3.75 years
Product X
Product Y
Product Z
Contribution Margin
$10,000
$12,000
$22,500
Units Produced
1,000
2,400
1,800
Contribution margin per unit
$10.00
$5.00
$12.50
Labor hours required/unit
4
4
5
Contribution margin per labor hour
$2.50
$1.25
$2.50
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