Question 1
1. The costs that are easiest to trace directly to products are A) direct materials and direct labor. B) direct labor and overhead. C) direct materials and overhead. D) none of the above; all three costs are equally easy to trace to the product. 2. Globe Company produces two products, A1 and B2. A1 is a high-volume item totaling 20,000 units annually. B2 is a low-volume item totaling only 6,000 units per year. A1 requires one hour of direct labor for completion, while each unit of B2 requires 2 hours. Therefore, total annual direct labor hours are 32,000 (20,000 + 12,000). Expected annual manufacturing overhead costs are $640,000. Globe uses a traditional costing system and assigns overhead based on direct labor hours. Each unit of B2 would be assigned overhead of A) $20.00. B) $24.61. C) $40.00. D) need more information to compute. 3. R-Ball Corporation manufactures deluxe and standard racquetball racquets. R-Ball's total overhead costs consist of assembly costs and inspection costs. The following information is available: Cost Deluxe Standard Total Cost Assembly 500 mach. hours 500 mach. hours $30,000 Inspections 350 150 $50,000 2,100 labor hours 1,900 labor hours R-Ball is considering switching from one overhead rate based on labor hours to activity-based costing. Using activity-based costing, how much assembly cost is assigned to deluxe racquets? A) $10,500. B) $15,000. C) $15,750. D) $21,000. 4. Gee-Tar Company manufactures two models of its guitar, the Beginner and the Pro. The Beginner model requires 10,000 direct labor hours and the Pro requires 30,000 direct labor hours. The company produces 3,400 units of the Beginner model and 600 units of the Pro model each year. The company inspects one Beginner for every 100 produced, and inspects one Pro for every 10 produced. The company expects to incur $56,400 of total inspecting costs this year. How much of the inspecting costs should be allocated to the Beginner model using ABC costing? A) $14,100 B) $20,400 C) $28,200 D) $47,940 5. A company incurs $1,350,000 of overhead each year in three departments: Ordering and Receiving, Mixing, and Testing. The company prepares 2,000 purchase orders, works 50,000 mixing hours, and performs 1,500 tests per year in producing 200,000 drums of Goo and 600,000 drums of Slime. The following data are available: Department Expected use of Driver Cost Ordering and Receiving 2,000 $400,000 Mixing 50,000 500,000 Testing 1,500 450,000 Production information for Goo is as follows: Department Expected use of Driver Ordering and Receiving 400 Mixing 20,000 Testing 500 Compute the amount of overhead assigned to Goo. A) $337,500 B) $430,000 C) $527,382 D) $675,000 6. An important element of just-in-time processing is A) dependable suppliers who are willing to deliver on short notice. B) a specialized workforce. C) less emphasis on a quality control system. D) all of the above. 7. In the pull approach A) subassembly parts are manufactured and stored just in case they are needed later in the manufacturing process. B) Finished goods are completed and stored just in case unexpected and rush customer orders are received. C) the manufacturing process begins with a customer placing an order. D) None of the above. 8. Two costs at Watson, Inc. appear below for specific months of operation. Month Amount Units Produced Delivery costs January $ 40,000 40,000 February 55,000 60,000 Utilities January $ 84,000 40,000 February 126,000 60,000 Which type of costs are these? A) Delivery costs and utilities are both variable. B) Delivery costs and utilities are both mixed. C) Utilities are mixed and delivery costs are variable. D) Delivery costs are mixed and utilities are variable. 9. If the activity level increases 10%, total variable costs will A) remain the same. B) increase by more than 10%. C) decrease by less than 10%. D) increase 10%. 10. At the high level of activity in November, 7,000 machine hours were run and power costs were $12,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $6,000. Using the high-low method, the estimated fixed cost element of power costs is A) $12,000. B) $6,000. C) $3,600. D) $8,400. 11. Wynne Company's high and low level of activity last year was 60,000 units of product produced in May and 20,000 units produced in November. Machine maintenance costs were $78,000 in May and $30,000 in November. Using the high-low method, determine an estimate of total maintenance cost for a month in which production is expected to be 45,000 units. A) $67,500 B) $72,000 C) $58,500 D) $60,000 12. A company has contribution margin per unit of $45 and a contribution margin ratio of 40%. What is the unit selling price? A) $75.00. B) $112.50. C) $18.00. D) Cannot be determined. 13. Disney's variable costs are 30% of sales. The company is contemplating an advertising campaign that will cost $22,000. If sales are expected to increase $40,000, by how much will the company's net income increase? A) $18,000. B) $28,000. C) $12,000. D) $6,000. 14. At the break-even point of 2,000 units, variable costs are $55,000, and fixed costs are $32,000. How much is the selling price per unit? A) $43.50. B) $11.50. C) $16.00. D) Not enough information 15. Fallow-Hawke is a nonprofit organization that captures stray deer from residential communities. Fixed costs are $10,000. The variable cost of capturing each deer is $10.00 each. Fallow-Hawke is funded by a local philanthropy in the amount of $32,000 for 2008. How many deer can Fallow-Hawke capture during 2008? A) 2,200. B) 3,200. C) 4,200. D) 2,000. 16. Reese Company requires sales of $2,000,000 to cover its fixed costs of $700,000 and to earn net income of $500,000. What percent are variable costs of sales? A) 25%. B) 40%. C) 35%. D) 60%. 17. Dodge Company produces flash drives for computers, which it sells for $20 each. Each flash drive costs $6 of variable costs to make. During March, 1,000 drives were sold. Fixed costs for March were $4.20 per unit for a total of $4,200 for the month. If variable costs decrease by 10%, what happens to the break-even level of units per month for Dodge Company? A) It is 10% higher than the original break-even point. B) It decreases about 12 units. C) It decreases about 30 units. D) It depends on the number of units the company expects to produce and sell. 18. How much sales are required to earn a target net income of $128,000 if total fixed costs are $160,000 and the contribution margin ratio is 40%? A) $400,000. B) $648,000. C) $720,000. D) $320,000. 19. Sutton Company produces flash drives for computers, which it sells for $20 each. Each flash drive costs $6 of variable costs to make. During April, 700 drives were sold. Fixed costs for April were $4 per unit for a total of $2,800 for the month. How much does Sutton's operating income increase for each $1,000 increase in revenue per month? A) $700. B) $500. C) $14,000. D) Not enough information to determine the answer. 20. The following monthly data are available for Tugg, Inc. which produces only one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses, $70,000; Actual sales for the month of June, 4,000 units. How much is the margin of safety for the company for June? A) $42,000. B) $63,000. C) $37,800. D) $1,500. 21. Lagerfield Company reported the following results from the sale of 5,000 hammers in May: sales $200,000, variable costs $120,000, fixed costs $60,000, and net income $20,000. Assume that Lagerfield increases the selling price of hammers by 10% on June 1. How many hammers will have to be sold in June to maintain the same level of net income? A) 4,000. B) 4,300. C) 4,500. D) 5,000. 22. In 2010, Logan sold 1,000 units at $500 each, and earned net income of $40,000. Variable expenses were $300 per unit, and fixed expenses were $160,000. The same selling price is expected for 2011. Logan's variable cost per unit will rise by 10% in 2011 due to increasing material costs, so they are tentatively planning to cut fixed costs by $10,000. How many units must Logan sell in 2011 to maintain the same income level as 2010? A) 882 B) 1,000 C) 1,056 D) 1,118 23. Konerko Company sells two types of computer chips. The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus). Q-Chip has variable costs per unit of $30 and a selling price of $50. Q-Chip Plus has variable costs per unit of $35 and a selling price of $65. The weighted-average unit contribution margin for Konerko is: A) $23. B) $25. C) $27. D) $50. 24. Konerko Company sells two types of computer chips. The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus). Q-Chip has variable costs per unit of $30 and a selling price of $50. Q-Chip Plus has variable costs per unit of $35 and a selling price of $65. Konerko's fixed costs are $540,000. How many units of Q-Chip would be sold at the break-even point? A) 6,000 B) 7,043 C) 10,000 D) 14,000 25. Fields Corporation has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Fields incurs $2,220,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. The weighted-average contribution margin ratio is A) 37%. B) 40%. C) 43%. D) 50%. 26. Fields Corporation has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Fields incurs $2,220,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. The break-even point in dollars is A) $821,400. B) $5,162,791. C) $5,550,000. D) $6,000,000. 27. A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $16 and takes two machine hours to make and Product B has a unit contribution margin of $30 and takes three machine hours to make. If there are 1,000 machine hours available to manufacture a product, income will be A) $2,000 more if Product A is made. B) $2,000 less if Product B is made. C) $2,000 less if Product A is made. D) the same if either product is made. 28. Small Fry Company has sales of $1,000,000, variable costs of $400,000, and fixed costs of $450,000. Small Fry's degree of operating leverage is: A) 0.80. B) 1.50. C) 1.67 D) 4.00. 29. A cost structure which relies more heavily on fixed costs makes the company: A) more sensitive to changes in sales revenue. B) less sensitive to changes in sales revenue. C) either more or less sensitive to changes in sales revenue, depending on other factors. D) have a lower break-even point. 30. A company with a higher contribution margin ratio is: A) more sensitive to changes in sales revenue. B) less sensitive to changes in sales revenue. C) either more or less sensitive to changes in sales revenue, depending on other factors. D) likely to have a lower breakeven point.,3. Vinnie Morelli Corporation has the following overhead costs and cost drivers. Direct labor hours are estimated at 100,000 for the year. Activity Cost Pool Cost Driver Est. Overhead Cost Driver Activity Ordering and Receiving Orders $ 120,000 500 orders Machine Setup Setups 297,000 450 setups Machining Machine hours 1,500,000 125,000 MH Assembly Parts 1,200,000 1,000,000 parts Inspection Inspections 300,000 500 inspections If overhead is applied using traditional costing based on direct labor hours, the overhead application rate is A) $9.60. B) $12.00. C) $15.00. D) $34.17. 5. Donkey Company manufactures two products, Standard and DeLuxe. Donkey's overhead costs consist of machining, $2,000,000; and assembling, $1,000,000. Information on the two products is: Standard DeLuxe Direct labor hours 10,000 15,000 Machine hours 10,000 30,000 Number of parts 90,000 160,000 Overhead applied to Standard using traditional costing using direct labor hours is A) $860,000. B) $1,200,000. C) $1,800,000. D) $2,140,000. 6. Donkey Company manufactures two products, Standard and DeLuxe. Donkey's overhead costs consist of machining, $2,000,000; and assembling, $1,000,000. Information on the two products is: Standard DeLuxe Direct labor hours 10,000 15,000 Machine hours 10,000 30,000 Number of parts 90,000 160,000 Overhead applied to Standard using activity-based costing is A) $860,000. B) $1,200,000. C) $1,800,000. D) $2,140,000. 7. OldMaid Inc. computed an overhead rate for machining costs ($1,000,000) of $10 per machine hour. Machining costs are driven by machine hours. If computed based on direct labor hours, the overhead rate for machining costs would be $20 per direct labor hour. The company produces two products, Gert and Mill. Gert requires 60,000 machine hours and 20,000 direct labor hours, while Mill requires 40,000 machine hours and 30,000 direct labor hours. Using activity-based costing, machining costs assigned to each product is 10. An increase in the level of activity will have the following effects on unit costs for variable and fixed costs: 11. Fontain, Inc. collected the following production data for the past month: Units Produced Total Cost 1,600 $22,000 1,300 19,000 1,500 22,500 1,100 16,500 If the high-low method is used, what is the monthly total cost equation? A) Total cost = $4,400 + $11/unit B) Total cost = $5,500 + $10/unit C) Total cost = $0 + $15/unit D) Total cost = $3,300 + $12/unit 14. Clark Company produces flash drives for computers, which it sells for $20 each. Each flash drive costs $12 of variable costs to make. During April, 1,000 drives were sold. Fixed costs for March were $2 per unit for a total of $1,000 for the month. How much is the contribution margin ratio? A) 30%. B) 40%. C) 60%. D) 70%. 15. If a company had a contribution margin of $500,000 and a contribution margin ratio of 40%, total variable costs must have been A) $750,000. B) $300,000. C) $1,250,000. D) $200,000. 18. Variable costs for Foley, Inc. are 25% of sales. Its selling price is $80 per unit. If Foley sells one unit more than break-even units, how much will profit increase? A) $60.00. B) $20.00. C) $26.66. D) $320.00. 19. A company requires $1,020,000 in sales to meet its net income target. Its contribution margin is 30%, and fixed costs are $180,000. What is the target net income? A) $306,000. B) $234,000. C) $420,000. D) $126,000. 26. Fields Corporation has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Fields incurs $2,220,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. What will sales be for the Sporting Goods Division at the break-even point? A) $1,800,000 B) $2,100,000 C) $3,355,814 D) $3,900,000 29. Which of the following statements is not true? A) Operating leverage refers to the extent to which a company's net income reacts to a given change in sales. B) Companies that have higher fixed costs relative to variable costs have higher operating leverage. C) When a company's sales revenue is increasing, high operating leverage is good because it means that profits will increase rapidly. D) When a company's sales revenue is decreasing, high operating leverage is good because it means that profits will decrease at a slower pace than revenues decrease.
Question 5
I was looking for help with these questions. They were listed on the site and I thougt the answeres were already uploaded on the site. If I could have the answers by 4 PM (CST). Would be great at the latest. "Use the following information for ECE Incorporated to answer questions 1 - 3: Assets $200 million Shareholder Equity $100 million Sales $300 million 1. If ECE's stock is currently trading at $24.00 and ECE has 25 million shares outstanding, then ECE's market-to-book ratio is closest to: a. .24 b. 4 c. 6 d. 30 2. If ECE's return on assets (ROA) is 12%, the ECE's net income is: a. $6 million b. $12 million c. $24 million d. $36 million 3. If ECE's net profit margin is 8%, then ECE's return on equity (ROE) is: a. 10% b. 12% c. 24% d. 30% 4. If Firm A and Firm B are in the same industry and use the same production method, and Firm A's asset turnover is higher than that of Firm B, then all else equal we can conclude: a. Firm A is more efficient than Firm b. Firm A has a lower dollar amount of assets than Firm B c. Firm A has higher sales than Firm B d. Firm A has a lower ROE than Firm B 5. If Moon Corporation's gross margin declined, which of the following is true? a. It's cost of goods sold increased. b. It's cost of goods sold as a percent of sales increased. c. Its sales increased d. Its net profit margin was unaffected by the decline. 6. Which of the following statements is false? a. The main components of net working capital are cash, inventory, receivables, and payables. b. The firm's cash cycle is the average length of time between when a firm originally purchases its inventory and when it receives the cash back from selling its product. c. Working capital includes the cash that is needed to run the firm on a day-to-day basis. It does not include excess cash, which is cash that is not required to run the business and can be invested at a market rate. d. If the firm pays cash for its inventory, the firm's operating cycle is identical to the firm's cash cycle. Please use the following information to answer questions 7 - 8. Reardon Metal (RM) had $120 million is sales in 2009. Its cost of goods sold was $85, and its average inventory balance was $15 million. 7. The average number of inventory days outstanding for Rearden is closest to: a. 6 days b. 8 days c. 37 days d. 64 days 8. The industry average days of inventory is 75 days. The amount that Rearden would have to increase/decrease its inventory in order to match the industry average is closest to: a. decrease inventory by 2.2 million b. increase inventory by 2.2 million c. increase inventory by 2.5 million d. increase inventory by 4.2 million 9. Rearden Metal needs to order a new blast furnace that will be delivered in one year. The $1,000,000 price for the blast furnace is due in one year when the new furnace is installed. The blast furnace manufacturer offers Rearden Metal a discount of $50,000 if they pay for the furnace now. If the interest rate is 7%, then the NPV of paying for the furnace now is closest to: a. ($15,421) b. $15,421 c. ($46,729) d. $46,729 10. Which of the following statements is false? a. The interest rates that banks offer on investments or charge on loans depends on the horizon of the investment or loan. b. The Federal Reserve determines very short-term interest rates through its influence on the federal funds rate. c. The interest rates that are quoted by banks and other financial institutions are nominal interest rates. d. Fundamentally, interest rates are determined by the Federal Reserve. 11. Suppose a ten-year bond with semiannual coupons has a price of $1,071.06 and a yield to maturity of 7%. This bond's coupon rate is closest to: a. 3.5% b. 6.0% c. 7.0% d. 8.0% Use the following information to answer questions 12-14 The Sisyphean Company has a bond outstanding with a face value of $1,000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually. 12. How much will each semiannual coupon payment be? a. $60 b. $40 c. $120 d. $80 13. Assuming the appropriate YTM on the Sisyphean bond is 7.5%, then the price that this bond trades for will be closest to: a. $1,045 b. $691 c. $1,000 d. $957 14. Assuming the appropriate YTM on the Sisyphean bond is 9%, then this bond will trade at a. A premium b. A discount c. Par d. Not enough information to determine 15. Which of the following statements is false? a. Prices of bonds with lower durations are more sensitive to interest rate changes b. When a bond is trading at a discount, the price increase between coupons will exceed the drop when a coupon is paid, so the bond's price will rise and its discount will decline as time passes. c. Coupon bonds may trade at a discount, at a premium, or at par. d. The sensitivity of a bond's price changes in interest rates is the bond's duration. 16. Which of the following is not a way a firm can increase its dividend? a. By increasing its retention rate b. By decreasing its shares outstanding c. By increasing its earnings (net income) d. By increasing its dividend payout rate Use the following to answer questions 17-19 Rearden Metals has a current stock price of $30 share, is expected to pay a dividend of $1.20 in one year, and its expected price right after paying that dividend is $33. 17. Rearden?s expected dividend yield is closest to: a. 3.40% b. 3.65% c. 4.00% d. 4.20% 18. Rearden?s expected capital gains yield is closest to: a. 4.0% b. 6.4% c. 8.2% d. 14.0% 19. NoGrowth Industries presently pays an annual dividend of $1.50 per share and it is expected that these dividend payments will continue indefinitely. If NoGrowth's equity cost of capital is 12%, then the value of a share of NoGrowth's stock is closest to: a. $10 b. $15 c. $14 d. $12.50 20. Von Bora Corporation (VBC) is expected to pay a $2.00 dividend at the end of this year. If you expect VBC's dividend to grow by 5% per year forever and VBC's equity cost of capital is 13%, then the value of a share of BBC stock is closest to: a. 25 b. $40 c. $15.40 d. $11.10 21. Which of the following statements is false? a. The total payout model allows us to ignore the firm's choice between dividends and share repurchases b. By repurchasing shares, the firm increases its share count, which decreases its earning and dividends on a per-share basis. c. The total payout model discounts the total payouts that the firm makes to shareholders, which is the total amount spent on both dividends and share repurchases d. In the dividend discount model we implicitly assume that any cash paid out to the shareholders takes the form of a dividend. 22. Suppose that KAN's beta is 1.5. If the market risk premium is 8% and the risk-free interest rate is 4%, then the expected return for KAN stock is? a. 8.0% b. 16.0% c. 13.5% d. 10.0% Use the following information to answer questions 24-25: Food For Less (FFL), a grocery store, is considering offering one hour photo developing in their store. The firm expects that sales from the new one hour machine will be $150,000 per year. FFL currently offers overnight film processing with annual sales of $100,000. While many of the one hour photo sales will be new customers, FFL estimates that 60% of their current overnight photo customers will switch and use the one hour service. 23. The level of incremental sales associated with introducing the new one hour photo service is closest to: a. $90,000 b. 150,000 c. 60,000 d. 120,000 24. Suppose that of the 60% of FFL's current overnight photo customers, half would start taking their film to a competitor that offers one hour photo processing if FFL fails to offer the one hour service. The level of incremental sales in this case is closest to: a. $60,000 b. $150,000 c. $90,000 d. $120,000 25. You are considering adding a microbrewery on to one of your firm's existing restaurants. This will entail an increase in inventory of $8,000, an increase in accounts payable of $2,500, and an increase in property, plant and equipment of $40,000. All other accounts will remain unchanged. The change in net working capital resulting form the addition of the microbrewery is a. $45,500 b. $10,500 c. $6,500 d. $5,500 26. Bubba Company reported net income of $300 million for the most recent fiscal year. The firm had depreciation expenses of $125 million and capital expenditures of $150 million. Although they had no interest expense, the firm did have an increase in net working capital of $20 million. What is Bubba's free cash flow? a. $170 million b. $255 million c. $150 million d. $5 million 27. Consider a project with free cash flows in one year of $90,000 in a weak economy or $117,000 in a strong economy, with each outcome being equally likely. The initial investment required for the project is $80,000, and the project's cost of capital is 15%. The risk-free interest rate is 5%. The NPV for this project is closest to: a. $6,250 b. $14,100 c. $10,000 d. $18,600 28. Suppose that Taggart Transcontinental currently has no debt and has an equity cost of capital of 10%. Taggart is considering borrowing funds at a cost of 6% and using these funds to repurchase existing shares of stock. Assume perfect capital markets. If Taggart borrows until they achieve a debt-to-equity ratio of 20%, then Taggart's levered cost of equity would be closest to: a. 8.0% b. 9.2% c. 10.0% d. 11.0% 29. Which of the following statements is false? a. In perfect capital markets, buying and selling securities is a zero-NPV transaction, so it should not affect firm value. b. Making positive NPV investments will create value for the firm's investors, whereas saving the cash or paying it out will not. c. In perfect capital markets, if a firm invests excess cash flows in financial securities, the firm's choice of payout versus retention is irrelevant and does not affect the initial share price. d. After adjusting for investor taxes, there remains a substantial tax advantage for the firm to retain excess cash. 30. Which of the following statements is false? a. A call option gives the owner the right to buy the asset. b. A put option gives the owner the right to sell the asset. c. A financial option contract gives the writer the right (but not the obligation) to purchase or sell an asset at a fixed price at some future date. d. A stock option gives the holder the option to buy or sell a share of stock on or before a given date for a given price. 31. Wyatt Oil has 8 million shares outstanding and is about to issue 10 million new shares in an IPO. The IPO price has been set at $15 per share, and the underwriting spread is 6%. the IPO is a big success with investors, and the share price rises to $35 the first day of trading. The amount that Wyatt Oil raised during the IPO is closest to a. $113 million b. $141 million c. $150 million d. $329 million
