Fill in the blank with the appropriate answer. 1. _____Smith Company will receiv

Question

Fill in the blank with the appropriate answer. 1. _____Smith Company will receive a lump sum of $15,000 in 3 years. What is the present value of this cash flow, discounted at 8%? 2. _____Terra Company incurred actual manufacturing overhead of $300,000 this year; the applied overhead was $305,000. Was Terra over or underapplied and by how much? 3. _____Beginning Finished Goods Inventory + Cost of Goods Manufactured – Ending Finished Goods Inventory = what? 4. _____The costs of depreciation on the factory and indirect materials would be classified as what type of cost? 5. ____Johnson Company completes and transfers 9,000 units. Additionally, there are 3,000 units that are 30% complete as to conversion. How many equivalent units does this represent? 6. ____Willy has fixed costs of $30,000. The price of their product is $10 and the variable costs = $4 per unit. What is the breakeven point in units? 7. ____Tommie Co. has fixed costs of $250,000 and a CM ratio of .35. How much revenue would Tommie need to generate to make a profit of $60,000? 8. ____When creating a master budget, the first budget to be prepared is which one? 9. ____Bob computed the net present value of a project and found that the NPV was $2,000 when he discounted the future cash flows using a 6% discount rate. Was the IRR 6%, less than 6% or greater than 6%? 10. ___Billie computed the NPV for a project and found that NPV=0. Is the investment acceptable or unacceptable?

Explanation / Answer

1) Present value of 15000 received at the end of 3 years = 15000 / (1+8%)^3 = 11907.48

2) When applied overhead is greater than actual overhead, it is a condition of overhead overapplied. In the given case overhead overapplied by 5000 (305000 -300000)

3) Opening Inventory of Finished Goods + Cost of Goods Manufactured - Ending Inventory of Finished Goods will give us the Cost of Goods Sold which means the cost incurred on the goods that have been actually sold.

4) Depreciation on Factory and indirect materials are considered as indirect cost relevant to production and are included in the calculation of factory cost

5) Equivalent Units = 9000 * 100% + 3000 * 30% = 9900 units

6) Break even point = Fixed Costs / Contribution per unit = 30000 / (10 -4 ) = 5000 units

7) Revenue required to generate a profit of 60000 = (Fixed COst + Target Profit) / Contribution Margin = 310000 /0.35 = 885714.28

8) the first budget prepared in a master budget is sales budget

9) At IRR , NPV = 0. Since we have a case of NPV greater than 0 , we can conclude that IRR is greater than 6% (as it would require higher discount rate to bring the positive amount close to 0)

10) The investment does not create any value addition and hence is unacceptable. However in certain cases projects with zero NPV may be accepted to increase their market share

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