1) A sunk cost is:
A) a cost which may be saved by not adopting an alternative.
B) a cost which may be shifted to the future with little or no effect on current
operations.
C) a cost which cannot be avoided because it has already been incurred.
D) a cost which does not entail any dollar outlay but which is relevant to the
decision-making process.
2) Prehn Corporation manufactures and sells one product. The following information
pertains to the company’s first year of operations:
The company does not have any variable manufacturing overhead costs or variable
selling and administrative costs. During its first year of operations, the company
produced 36,000 units and sold 30,000 units. The company’s only product is sold for
$251 per unit.
Assume that the company uses an absorption costing system that assigns $28 of direct
labor cost and $70 of fixed manufacturing overhead to each unit that is produced. The
unit product cost under this costing system is:
A.$81 per unit
B.$109 per unit
C.$227 per unit
D.$179 per unit
3) Furis Corporation’s cash and cash equivalents consist of cash and marketable
securities. Last year the company’s cash account decreased by $12,000 and its
marketable securities account increased by $19,000. Cash provided by operating
activities was $18,000. Net cash used in financing activities was $12,000. Based on this
information, the net cash flow from investing activities on the statement of cash flows
was:
A.a net $12,000 decrease.
B.a net $1,000 increase.
C.a net $6,000 decrease.
D.a net $6,000 increase.
4) The controller of Hartis Corporation estimates the amount of materials handling
overhead cost that should be allocated to the company’s two products using the data that
are given below:
The total materials handling cost for the year is expected to be $38,448.
If the materials handling cost is allocated on the basis of material moves, the total
materials handling cost allocated to the specialty windows is closest to:
A.$18,752
B.$19,224
C.$22,428
D.$28,836
5) Assume that dropping Product G would result in a $40,000 increase in the
contribution margin of other product lines. If Bailey chooses to drop Product G, then
the change in net operating income next year due to this action will be a:
A.$95,000 increase
B.$95,000 decrease
C.$25,000 decrease
D.$25,000 increase
The company would lose $750,000 in sales while saving $735,000 in expensesa net
effect of a $15,000 decrease. However, this would be more than offset by the $40,000
increase in contribution margin of other products, so the net effect would be a $25,000
increase in net operating income.
6) The company’s book value per share at the end of Year 2 is closest to:
A.$17.94 per share
B.$28.26 per share
C.$0.19 per share
D.$11.54 per share
7) ( Henscheid Roofing is considering the purchase of a crane that would cost
$104,972, would have a useful life of 7 years, and would have no salvage value. The
use of the crane would result in labor savings of $23,000 per year. The internal rate of
return on the investment in the crane is closest to:
A.13%
B.10%
C.12%
D.15%
8) Division A makes a part with the following characteristics:
Division B, another division of the same company, would like to purchase 5,000 units
of the part each period from Division A. Division B is now purchasing these parts from
an outside supplier at a price of $28 each.
Suppose that Division A is operating at capacity and can sell all of its output to outside
customers at its usual selling price. If Division A agrees to sell the parts to Division B at
$28 per unit, the company as a whole will be:
A.better off by $20,000 each period.
B.worse off by $10,000 each period.
C.worse off by $40,000 each period.
D.There will be no change in the profits of the company as a whole.
9) Propst Corporation has two divisions: Garden Division and Farm Division. The
following report is for the most recent operating period:
Required:
a. What is the Garden Division’s break-even in sales dollars?
b. What is the Farm Division’s break-even in sales dollars?
c. What is the company’s overall break-even in sales dollars?
d. What would be the company’s overall net operating income if the company operated
at its two division’s break-even points?
10) The overhead for the year was:
A.$1,010 underapplied
B.$590 overapplied
C.$590 underapplied
D.$1,010 overapplied
11) Harris, Inc., has budgeted sales in units for the next five months as follows:
Past experience has shown that the ending inventory for each month should be equal to
20% of the next month’s sales in units. The inventory on May 31 contained 1,880 units.
The company needs to prepare a production budget for the next five months.
The beginning inventory for September should be:
A.820 units
B.1,880 units
C.1,460 units
D.1,080 units
12) Marlan Manufacturing produces a product that passes through two processing
departments. The units from the Molding Department are completed in the Assembly
Department. The activity in the Assembly Department for the current month is
presented below. Marlan uses the FIFO method in its process costing system.
The equivalent units for materials for the Assembly Department during the month were:
A.30,000 units
B.38,000 units
C.40,800 units
D.42,000 units
13) How much will the company’s profits be increased or (decreased) if it prices the 100
units at $7 each?
A) $(30)
B) $150
C) $0
D) $310
14) Hogans Corporation has two divisions: Delta and Echo. Data from the most recent
month appear below:
The company’s common fixed expenses total $64,090. The break-even in sales dollars
for Echo Division is closest to:
A.$250,143
B.$387,059
C.$173,469
D.$304,265