Objective type questions on investment decisions
1. Ampulla Production Studios charges the Sound Effects Department's costs to two operating departments, Audio and Video. Charges are made on the basis of labor-hours. Information pertaining to the labor-hours for the year follows:
|
|
Audio
|
Video
|
|
Budgeted labor -hours for the year
|
18,000
|
27,000
|
|
Actual labor-hours for the year
|
14,700
|
27,300
|
|
Annual long run average capacity in labor - hours
|
15,000
|
25,000
|
The following costs pertain to the Sounds Effects Department:
|
|
Budgeted For Year
|
Actual For Year
|
|
Variable Costs
|
$315,000
|
$273,000
|
|
Fixed Costs
|
$756,000
|
$819,000
|
How much of the Sound Effects Department's variable cost should be charged to the Video Department at yearend for performance evaluation purposes?
- $175,000
- b $175,500
- $177,450
- $191,100
2. O'Neill, Incorporated's income statement for the most recent month is given below.
|
|
Total
|
Store A
|
Store B
|
|
Sales
|
$300,000
|
$100,000
|
$200,000
|
|
Variable expenses
|
192,000
|
72,000
|
120,000
|
|
Contribution margin
|
108,000
|
28,000
|
80,000
|
|
Traceable fixed expenses
|
76,000
|
21,000
|
55,000
|
|
Segment margin
|
32,000
|
$7,000
|
$25,000
|
|
Common fixed expenses
|
27,000
|
|
|
|
Net Operating income
|
$5,000
|
|
|
For each of the following questions, refer back to the original dat a. The marketing department believes that a promotional campaign at Store A costing $5,000 will increase sales by $15,000. If its plan is adopted, overall company net operating income should:
- decrease by $800
- b decrease by $5,800
- increase by $5,800
- increase by $10,000
3. The Hum Division of the Ho Company reported the following data for last year:
|
Sales
|
$800,000
|
|
Operating expenses
|
$650,000
|
|
Interest expense
|
$50,000
|
|
Tax expense
|
$30,000
|
|
Stock holders' equity
|
$200,000
|
|
Average operating assets
|
$600,000
|
|
Minimum required rate of return
|
12%
|
The residual income for the Hum Division last year was:
- $126,000
- b $46,000
- $78,000
- $22,000
4. The following data pertain to Turk Company's operations last year:
|
Sales
|
$900,000
|
|
Net Operating income
|
$36,000
|
|
Contribution margin
|
$150,000
|
|
Average operating assets
|
$180,000
|
|
Stock holders' equity
|
$100,000
|
|
Plant, property, & equipment
|
$120,000
|
If the residual income for the year was $9,000, the minimum required rate of return must have been:
- 15%
- b 4%
- 20%
- 36%
5. Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below:
|
Selling price to outside customers
|
$40
|
|
Variable cost per unit
|
$30
|
|
Total fixed costs
|
$10,000
|
|
Capacity in units
|
20,000
|
Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $38 per unit and would substitute the part made by Division A. Division B requires 5,000 units of the part each period. Division A is already selling all of the units it can produce to outside customers. If Division A sells to Division B rather than to outside customers, the variable cost per unit would be $1 lower. What is the lowest acceptable transfer price from the standpoint of the selling division?
- $40
- b $39
- $38
- $37
6. (Ignore income taxes in this problem.) Almendarez Corporation is considering the purchase of a machine that would cost $320,000 and would last for 7 years. At the end of 7 years, the machine would have a salvage value of $51,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $72,000. The company requires a minimum pretax return of 18% on all investment projects. The present value of the annual cost savings of $72,000 is closest to:
- $22,608
- b $874,298
- $504,000
- $274,464
7. (Ignore income taxes in this problem.) Crowl Corporation is investigating automating a process by purchasing a machine for $792,000 that would have a 9 year useful life and no salvage value. By automating the process, the company would save $132,000 per year in cash operating costs. The new machine would replace some old equipment that would be sold for scrap now, yielding $21,000. The annual depreciation on the new machine would be $88,000. The simple rate of return on the investment is closest to:
- 11.1%
- b 16.7%
- 5.7%
- 5.6%