12) Fixed costs may or may not be relevant in decisions about whether a product
ID: 2546585 • Letter: 1
Question
12) Fixed costs may or may not be relevant in decisions about whether a product should be dropped A) True B) False WRT Corporation makes collections on sales according to the following schedule 25% in month of sale 65% in month following sale 5% in second month following sale 5% uncollectible The following sales have been budgeted April May June Sales $120,000 $100,000 $110,000 Budgeted cash collections in June would be: A) $71,000 B) $98,500 C) $115,500 D) $27,500 16) A vertically integrated company is more dependent on its suppliers than a company that is not vertically integrated A) True B) False 1s) The net present value of a proposed investment is negative. Therefore, the discount rate used must be: A) less than the minimum required rate of return. B) greater than the minimum required rate of return. C) less than the project's internal rate of return. D) greater than the project's internal rate of returnExplanation / Answer
Answer 12
A) True
Explanation : For decision about whether a product should be dropped , fixed cost is only relevant when it specifically changes due to dropping or discarding of the product , otherwise it is irrelevant when making decision about whether a product should be dropped .
Answer 13
B) $98,500
Ecplanation :
Collection in June = (25 % of June sales) + (65 % of May sales) +(5 % of April sales)
= 25 % * $110,000 + 65 % * $100,000 + 5 % * $120,000 = $27,500 + $65,000 + $6,000 = $98,500
Answer 14
B.) False
Explanation : Vertical integration refer to an arrangement where supply chain of company for the required parts are owned by the company itself. Thus vertically integrated company is less dependent on its suppliers
Answer 15
D) Greater than the project's internal rate of return
Explanation : Internal rate of return is a rate at which the NPV is zero & it is also known that higher discounting rate lowers the NPV . Thus for NPV to be negative the discounting rate must be higher than IRR.
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