Unformatted text preview:

1 of 41A company is considering the following alternatives:Alternative 1 Alternative 2Revenues $120,000 $120,000Variable costs60,000 70,000Fixed costs 35,000 35,000Which of the following are relevant in choosing between the alternatives?o Variable costso Variable costs and fixed costso Revenueso Fixed costs2 of 41Adler Company manufactures a product with the following costs:Unit variable cost $50Unit fixed cost 24Total cost per unit 74The company normally sells 10,000 units at a price of $88 each. Adler has a one-time opportunity to sell an additional 3,000 units at $70 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows:o Net income would increase by $60,000o Net income would increase by $210,000o Net income would decrease by $60,000o Net income would decrease by $12,000o Net income would increase by $12,0003 of 41If a company must expand capacity to accept a special order, it is likely that there will beo An increase in fixed costso An increase in variable and fixed costs per unito No increase in fixed costso An increase in unit variable costs4 of 41May Company produces 1,000 units of a necessary component with the following costs:Direct Materials $48,000Direct Labor 32,000Variable Overhead 8,000Fixed Overhead 14,000May Company could avoid $6,000 in fixed overhead costs if it acquires the components externally. If cost minimization is the major consideration and the company would prefer to buy the components, what is the maximum external purchase price that May Company would accept to acquire the 1,000 units externally?o $94,000o $108,000o $88,000o $96,000o $102,0005 of 41A company has a process that results in 500 drums of Chemical L that can be sold for $300 per drum. An alternative would be to process Chemical L further at a cost of $25,000 and then sell it for $380 per drum.Should management sell Chemical L now or should Chemical L be processed further and then sold? What is the effect of the action?o Process further, the company will be better off by $25,000o Sell now, the company will be better off by $15,000o Process further, the company will be better off by $15,000o Process further, the company will be better off by $40,000o Sell now, the company will be better off by $25,0006 of 41The focus of a sell or process further decisiono Incremental costo Incremental revenueo Both incremental revenue and incremental costo Neither incremental revenue nor incremental cost7 of 41A company is considering replacing old equipment with new equipment. Which of the following is a relevant cost for incremental analysis?o Book value of the old equipmento Estimated annual depreciation of the new equipmento Cost of the new equipmento Annual depreciation charge on the old equipment8 of 41A company has several product lines, one of which reflect the following results:Sales $400,000Variable expenses 275,000------------ -------------Contribution margin 125,000Fixed expenses 200,000------------ -------------Net loss $(75,000)If this product line is eliminated, 80% of the fixed expenses can be eliminated and the other 20% will be allocated to other product lines. If management decides to eliminate this product line, the company’s net income willo Increase by $35,000o Decrease by $35,000o Decrease by $85,000o Increase by $85,000o Increase by $75,0009 of 41Using compound interest, if you deposit $1,000 each year in an account paying 7% interest, approximately how much will have in that account in five years?o $7,013o $1,403o $5,75110 of 41A company is considering an investment, which will return lump saving of $150,000 four years from now.If they require a 10% return, what is the most they should pay for the investment?o $136,364o $102,450o $32,321o $47,320o $219,61511 of 41The internal rate of return is the interest rate that causeso a positive NPVo a negative NPVo the project that should be rejectedo a zero NPV12 of 41A company is considering investing in a project, which will cost $175,000, and last for 5 years. Annual netincome will be $45,000 and annual cash flow will be $50,000. What is the payback period from?o 3.89 yearso 0.29 yearso 0.26 yearso 5 yearso 3.5 years13 of 41If a project has equal annual cash flows, its cash payback period is computed by dividing the cost of the capital investment by theo annual net incomeo present value of the net incomeo net annual cash inflowo present value of the cash inflow14 of 41Pascual Company is considering the acquisition of new equipment at a cost of $1,700,000. The company’s accountants have provided the following additional information about the project for your analysis:Annual net income $360,000Net annual cash flow 390,000Estimated useful life 7 yearsIf the company has established a required return of 12%, what is the approximate net present value of the equipment acquisition?o ($3,608)o $1,030,000o $1,837,758o $137,758o $79,86615 of 41Your analysis of a project under consideration by Davenport Company reveals the following expected performance over its expected three year useful life:Net Income Cash FlowYear 1 $ 35,000 $ 40,000Year 2 45,000 50,000Year 3 55,000 60,000This project has a cost of $110,000 and Davenport has established a discount (hurdle) rate of 9%. What isthe approximate net present value of the project?o $2,457o $40,000o $125,113o $5,830o $15,11316 of 41Complete the statement:Intangible benefits in capital budgetingo include increased quality or employee loyaltyo are not considered because they are usually not relevant to the decisiono should be ignored because they are difficult to determineo none of these17 of 41You are evaluating the mutually exclusive projects which have the following financial characteristics:Project A Project BNet present value $ 50,000 $ 75,000Initial investment 200,000 400,000Project life 4 years 4 yearsWhich project should be accepted?o Either A or B, we are indifferento Neither A nor B should be acceptedo Project Ao There is not sufficient information to answero Project B18 of 41Hingis Hardware is evaluating a new retail location and its accountants have prepared some information for your review. Their analysis has established that the new location will costs $1,500,000 and generate net

View Full Document

LSU ACCT 2001 - Practice Exam

Download Practice Exam
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...

Join to view Practice Exam and access 3M+ class-specific study document.

We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Practice Exam 2 2 and access 3M+ class-specific study document.


By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?