Questions -
Q1) The following information pertains to three divisions of Conway, Inc. (amounts in millions):
|
Chemical
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Retail Paint
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Industrial
|
|
Sales
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$16,000
|
$30,000
|
$120,000
|
|
Operating Income
|
$4,000
|
$6,000
|
$40,000
|
|
Investment
|
$320,000
|
$660,000
|
$2,000,000
|
Which division is more profitable based on ROI?
A) Chemical
B) Retail paint
C) Industrial
D) Both Chemical and Retail paint are more profitable than Industrial.
Q2) P&G, Inc, sells a single product. This year, 20,000 units were sold resulting in $130,000 of sales revenue, $60,000 of variable costs, and $17,500 of fixed costs. The number of units that must be sold annually to achieve $52,500 of profits is:
A) 20,000 units.
B) 15,000 units.
C) 10,000 units.
D) 5,000 units.
Use the following information for Questions 3 & 4.
The following annual information is for Fantastic Products, Inc:
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Product X
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Product Y
|
|
Revenue per unit:
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$10.00
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$15.00
|
|
Variable cost per unit:
|
$ 2.50
|
$ 5.00
|
Total fixed costs: $100,000
Q3) If the sales mix consists of two units of Product X and one unit of Product Y, what is the break-even point in units for a year? I am confused between A and D
A) 2,000 units of Y and 4,000 units of X
B) 2,025 units of Y and 4,050 units of X
C) 4,025 units of Y and 8,050 units of X
D) 4,000 units of Y and 8,000 units of X
Q4) If the sales mix shifts to one unit of Product X and two units of Product Y, then the break-even point in units for a year will:
A) increase.
B) stay the same.
C) decrease.
D) be undeterminable.
Q5) When deciding to purchase a new cutting machine or continue using the old machine, the following costs are all relevant EXCEPT the:
A) $100,000 cost of the old machine.
B) $40,000 cost of the new machine.
C) $20,000 disposal value of the old machine.
D) $6,000 annual savings in operating costs if the new machine is purchased.
Q6) Hercules Chemical Company is considering replacing its existing computer system with a new computer system. The new system can offer considerable savings in computer processing and inventory management costs. Information about the existing system and the new system follow:
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Existing Computer
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New Computer
|
|
Original cost
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$10,000
|
$15,000
|
|
Annual operating cost
|
$3,500
|
$2,000
|
|
Accumulated depreciation
|
$6,000
|
---
|
|
Current salvage value of the existing system
|
$4,000
|
---
|
|
Remaining life in 5 years
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5 years
|
|
|
Salvage value in 5 years
|
$0
|
$0
|
|
Annual depreciation
|
$2,000
|
$3,000
|
Should Hercules replace the existing computer system with the new system? What are the cash flow savings or additional cost over the 5 years? Ignore income taxes.
A) Yes replace, net savings of $5,000.
B) Yes replace, net savings of $15,000.
C) No do not replace, additional costs of $5,000.
D) No do not replace, additional costs of $3,500.
Q7) Brando Company has three products, X, Y, and Z. The following information is available:
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Product X
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Product Y
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Product Z
|
|
Sales
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$30,000
|
$45,000
|
$12,000
|
|
Variable costs
|
18,000
|
24,000
|
7,500
|
|
Contribution margin
|
12,000
|
21,000
|
4,500
|
|
Fixed costs:
|
|
|
|
|
Avoidable
|
4,500
|
9,000
|
3,000
|
|
Unavoidable
|
3,000
|
4,500
|
2,700
|
|
Operating income
|
$4,500
|
$7,500
|
$ (1,200)
|
Assuming Product Z is discontinued and the space formerly used to produce the product is rented for $6,000 per year, operating income will:
A) increase by $3,300.
B) increase by $4,500.
C) increase by $6,000.
D) increase by $7,200.