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financial accounting information for decisions
Questions and Answers of
Financial Accounting Information For Decisions
Speed Boats Inc. has two divisions, Economy and Elite. The tax rate for the company is 40%. The following information pertains to the 2011 year:a. What is the ROI for each division?b. What is the EVA
Elsie Vinton Laboratories is evaluating the purchase of five new MRI machines for its labs at various locations in Vancouver for \($9,000,000,\) which will increase the company's before-tax profit by
Managers at The Tea Company are currently working on the company’s 2011 budget, which holds total assets of \($3,500,000.\) For the 2011 year, The Tea Company is expecting its average selling price
Brummy Limited consists of several investment centres. One investment centre, the Green Division, has a controllable investment of \($750,000,\) and profits are expected to be\($150,000\) this year.
Anston Industries is the manufacturing division of a large multinational. The divisional general manager is about to purchase new equipment for the manufacture of a new product. He can buy either the
Magna Products has three divisions, A, B, and C. The current investments in and net profits earned by each division are as follows:Each division has put forward to the parent board a capital
Serendipity is an Internet service provider that has a major investment in computer and telecom equipment, which needs replacement on a regular basis. The company has recently evaluated a $5 million
Paramount Homes provides rental properties for tenants. Repair services for the properties are provided by Paramount’ subsidiary, Quicker Repair Co. Because virtually all of Quicker’s sales are
Golf Holdings has two divisions: Alpha and Bravo. Alpha has a variable cost of sales of \($11\) per unit, which is its transfer price to Bravo. However, Alpha can sell its product on the open market
The Umber Company is a multidivisional company that manufactures toys. The Truck Division of the Umber Company has asked the Wheel Division to provide wheels that are required in the production of
Eva Petersen Professional Products has recently purchased a perfume factory that will be used to provide scents for its hair care products. The new factory has a capacity of 100,000 litres of scented
Maja and Mina are both divisions of Arbor Group. Both divisions trade on the open market but Maja also provides almost a quarter of its production output to Mina. Maja believes that Mina pays less
Wolf Creek Industries produces custom uniforms. The company uses machine hours to allocate manufacturing overhead costs to jobs. The following yearly information was compiled for Wolf Creek:During
Phil Manufacturing uses divisional cost driver rates to apply manufacturing overhead costs to products. Manufacturing overhead costs are allocated on the basis of machine hours in the Cutting
Cooper’s Components uses an activity-based costing system for its product costing. For the last quarter, the following data relate to costs, output volume, and cost drivers:a. What is the total
Samuelson uses activity-based costing. The company manufactures two products, X and Y. The annual production and sales of Products X Y are 3,000 and 2,000 units, respectively. There are three
Brixton Industries makes three products: widgets, gadgets, and helios. The following budget information relates to Brixton for next year.Overhead is allocated to production departments as
Zammit Engineering manufactures a number of components that are sold to the electronics industry. Most of the manufacturing processes are common to the products, and the direct costs (raw materials
Clear Auto Glass sold 3,500 windshields in 2011 and produced a total of 4,000 windshields. Total costs incurred for the year included the following:In January 2011, the beginning inventory of
Burchell Products sells a product for $25. Unit-level manufacturing costs for each unit are as follows: Direct materials, $5.00 Direct manufacturing labour, $4.50 Variable manufacturing overhead,
Blue Mountain sells plastic tubes used in underground sprinkler systems. The company had a total finished goods inventory of 5,000 units on hand at the end of 2011. During 2011, variable
Miri Sato was hired as the new manager of the Box Division of GRC Enterprises two years ago. During the last two years, sales have increased substantially and Sato has been pleased. She was excited
Bob's Bicycles manufactures high-quality trail bikes. The company has two divisions: Painting and Assembly. Painting is fully automated, as each bike part is run through a paint-spraying machine.
Good Vibes Products manufactures external drives for computers. The company has two production departments. Overhead in Department | is allocated based on 10,000 machine hours and overhead in
Overhead is usually allocated to production using a predetermined overhead rate based on an appropriate cost driver. The amount of overhead allocated to jobs is seldom the same as the actual amount
What is the net present value of the investment for the computer?a. $22,459b. $2,540c. $(2,540)d. $(5,000)The Whitton Company has an opportunity to buy a computer now for \($25,000\) that will
What is the IRR for the investment?a, 9.7%b. 20.1%c. 113%d. 12.3%The Whitton Company has an opportunity to buy a computer now for \($25,000\) that will yield annual net cash inflows of \($10,000\)
SmallCo, which has a cost of capital of 12%, is considering the following project:What is NPV of the project?a. $2,029b. $500c. $29d. $700 Year 2 3 Cash flows of project $(2,000) $1,000 $800 $700
The projected net cash flows for three projects are (in $thousands): Project Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 A $(350) $100 $200 $100 $100 $140 B (350) 40 100 210 260 160 C (350) 200 150 240
The projected net cash flows for a project are (in $thousands):Assuming the initial investment is depreciated over the life of the project, the accounting rate of return for the project isa. 25%b.
The projected net cash flows for an investment are (in $thousands):The net present value of the investment, assuming a 7% cost of capital isa. $801,000b. $(801,000)c. $49,500d. $(49,500)
The present values of cash flows for projects, each of which has an initial capital outlay of$350,000, areThe cash value added (or profitability index) for each project suggests that the preferred
Rex Products has been considering the purchase of a new machine. The existing machine will operate for 4 more years and will then have a zero disposal value. If the machine is disposed of now, it may
Pajama Company wants to purchase a new sewing machine that will have a useful life of 5 years. The investment is expected to generate annual cash inflows of $30,000. The cost of capital for the
Wally’s Plumbing provides commercial plumbing services to large factories. The company is looking at purchasing some new equipment that will have a useful life of 4 years. Information on the
Green Tea Corporation recently purchased a new tea processor for \($320,900.\) The existing equipment had a remaining life of 10 years. The additional cash flows will be \($50,000\) per year from
The following information was provided related to three machines that London Press is considering investing in:a. Purchase any of the three machines.b. Purchase Machine C.c. Purchase Machine A.d. Do
The accounting records of Turner Industries, a manufacturer of flash drives, shows the following costs for the year ended December 31, 2011.The amount of prime costs incurred in 2011 werea. 920,000b.
Use the following costs per unit to identify the total product cost and conversion cost per unit: Direct materials Indirect materials Direct labour Indirect labour Other variable overhead costs
Intelco, a professional services firm, has overhead costs of $500,000. It operates three divisions, and an accountants estimate of the overhead allocation per division is 50% for Division 1, 30% for
BCF Ltd. manufactures a product known as a Grunge. Direct material and labour costs for each Grunge are \($300\) and \($150,\) respectively. To produce a Grunge requires 20 labour hours:10 hours in
Engineering Products produces Product GH1, which incurs costs of \($150\) for direct materials and \($75\) for direct labour per unit. The company has estimated its production overhead and direct
Haridan Co. uses activity-based costing. The company has two products, A and B. The annual production and sales of Products A and B are 8,000 units and 6,000 units, respectively. There are three
Elandem Ltd. produces 20,000 units of Product L and 20,000 units of Product M. Under activity-based costing, \($120,000\) of costs are purchasing-related. Each period, 240 purchase orders are
Heated Tools Ltd. uses activity-based costing. It has identified three cost pools and their drivers as follows:What is the cost driver rate for quality control?a. $10b. $4c. $15d. $5 Driver Cost pool
Gyro Industries makes hub caps for the car industry. Direct materials are \($12\) per unit, while direct labour is \($2.00\) per unit. Variable overhead is \($0.50\) per unit and fixed overhead is
What is the cost per batch of pencils if absorption costing is used?a. $35b. $105c. $109d. $45 Ariana Corp. makes pencils. The actual and budgeted overhead for the year was $350,000. The com- pany
What is the cost per batch of pencils if variable costing is used?a. $45b. $105c. $35d. $109 Ariana Corp. makes pencils. The actual and budgeted overhead for the year was $350,000. The com- pany
Andy’s Office Warehouse makes office chairs. The following information was reported for the year ended 2011.The operating profit for 2011 using absorption costing would bea. $372,800b. $351,800c.
Co. needs 20,000 units of a certain part to use in one of its products. The following information is available.Cost to Cardinal to make each part:The cost to outsource the production of the part to
Bendix Ltd. is considering the alternatives of either outsourcing component VX-1 to an outside supplier or producing the component itself. Production costs to Bendix are estimated as follows:An
Call Centre Services (CCS) operates two divisions: a call centre that answers incoming customer service calls on behalf of its clients and a telemarketing operation that makes outgoing sales calls to
Abby Gale Services understands the importance of hiring qualified staff to help run its credit-counselling company. Abby Gale is developing a balanced scorecard to help determine the effectiveness of
Coté Freres Ltee. manufactures high-technology products for the computer industry. Coté’s accountant has produced the following profit report showing statistics for each of its three main
Sly & Partners is a city law firm with 12 partners and 30 associates. Charge-out rates are based on the following calculations:Due to a shortage of work, only 14,000 partner hours and 52,000
The Recruitment Department of a major company has 13 staff members:a manager, seven recruiters, and five administrators. The department is continually exceeding its budget for expenses, particularly
Maxitank makes four products. The following information relates to each product:Maxitank's sales are limited by the machine capacity of the factory, which is the company's bottleneck. Which product
Nathan Eldridge is a lawyer whose services are in very high demand. He currently has five clients seeking his services but only 80 hours of available time. He has provided the following estimates for
Which one of the following items is NOT relevant in a make-or-buy decision?a. Variable costs of producing each unitb. Cost to purchase each unit from outside supplierc. Possible revenues earned from
A call centre can process 100,000 calls per month for a cost of $250,000. During one month, the number of calls processed was 85,000. During that month, the cost of unused capacity wasa. $25,000b.
Sunny Enterprises makes a component ‘that ii s used in the ese of radios, the company’s main product. For the component, the variable costs per unit are \($18.\) Razor Edge Products wants to sell
Pawistik Corporation makes computer screens that are used in the assembly of laptops which Pawistik sells to the general public. The costs per screen are as follows:Computer Accessories Inc. has
Halls Medical Labs makes medical examining tables for hospitals. The current equipment used to manufacture the tables has a book value of \($250,000.\) Halls is considering replacing the existing
Barbs Fine Bakery is considering purchasing a new truck for the business. Barb’s existing truck is a gas guzzler, and with increases in the costs of fuel, she feels she may be able to save a great
The goal of the Theory of Constraints and throughput accounting is to maximize production capacity in bottlenecks by a ranking of products that havea. The highest selling priceb. The highest rate of
Warranty costs are an example ofa. Internal failure costsb. External failure costsc. Prevention costsd. Appraisal costs
Quality training is an example ofa. Internal failure costsb. External failure costsc. Prevention costsd. Appraisal costs
Which of the following is NOT an example of an internal failure cost? a. Scrapb. Reworking of productsc. Supplier scrap and reworkd. Returned product
A consultant is paid a salary of $40,000 per year. Her employer's share of CPP is 4.95% and of EI is 2.52%. Assuming that the consultant works 230 days per year and is productive for 75% of that
Grant & McKenzie is a firm of financial advisers that needs to calculate an hourly rate to charge customers for its services.The average salary cost for its advisers is $50,000. The employer’s
What are the variable costs per transaction?a. $0.71b. $0.75c. $0.50d. $2.00 Local Bank does not know how much of its salaries related to cheque processing are fixed and how much are variable.
What are the fixed costs?a. $40,000b. $250,000c. $0d. $200,000Local Bank does not know how much of its salaries related to cheque processing are fixed and how much are variable. However, total
A company has 5 employees who have a cost of \($100\) per day each but currently have no work to do; this situation is expected to last for the next two weeks. The company is considering accepting a
A call centre department incurs wage costs of $100,000 per year for staff to make 25,000 sales calls each year. At the end of the year, management reports disclose that the actual number of calls
Cirrus Company has calculated that the cost to make a component is made up of materials,\($120;\) variable labour, \($60;\) variable overhead, \($30;\) and fixed overhead, \($25.\) Another company
Zipper Ltd. incurs the following costs to provide each “Special Delivery Service’ for its customers:Zipper is considering outsourcing the service and wants to determine the relevant cost of each
Bromide Partners provides three services: accounting, auditing, and tax services. The total business overhead of $650,000 has been divided into two cost pools, as shown below:What is the total cost
The table below shows cost items for Gobblers Restaurant. Classify each of the items as a variable, fixed, mixed, or step cost and explain your reasoning. Cost Variable Fixed Mixed Step Food Napkins
Luffer Enterprises estimates the following demand for its services at different selling prices. All demand is within Luffer’s relevant range. Variable costs are \($15\) per unit and fixed costs are
Godfrey Associates adopts a target rate of return pricing system for its services and expects a target rate of return of 25% on an investment of \($750,000.\) Its labour costs are \($25\) per hour
The marketing department of Giggo Hotels has estimated the a number of hotel rooms (it has a capacity of 200) that could be sold at different price levels. This information is shown below:Giggo has
The Cook Co. has two divisions, Eastern and Western. The divisions have the following revenue and expenses:The management of Cook is considering the closure of the Eastern Division sales office. If
Jacobean Creek Corporation has provided the following data for last year:For the current year, Jacobean Creek believes that although sales volume will remain constant, the contribution margin per
Travesty Stores are considering deleting its porcelain product to losses being experienced. Travesty’s summary profit report shows the following:a. What allocation basis is the company using to
Webster Products Group has conducted a major market survey of its product sales of automotive accessories for the next year. The survey has produced the range 6f price/quantity combinations shown in
Matthew Hall Elementary School is planning a fundraiser to raise money to buy sports equipment. It is researching two fundraising ideas: chocolates and muffin mix. The details for each fundraiser are
Clinical Services imports and sells surgical instrument kits to hospitals at a price of \($150\) per kit. The cost of each kit is \($85.\) Average sales per month are 1,000 kits, which results in the
Unfocused Books is a discount retail bookshop that has three departments: fiction, non-fiction, and children’s books. Sales and variable cost of goods sold for each department are shown below. In
Greentown Industries sells its transport services at a range of prices to five different customer groups. The company has fixed costs of \($150,000\) per year. The average variable costs for each
General Consultants Ltd. has four divisions, whose summary profit reports are shown below (in thousands of dollars):The senior partners are considering whether to continue with the Finance and
Borgus Computer Monitors makes flat-screen computer monitors to sell to major computer manufacturers. Borgus was approached by Green Systems, a new customer, to fill a one-time special order for
The India Company manufactures handmade Persian rugs. Within the India Company, there are two divisions: the Dye Division makes dyes and colours the wool, while the Weaving Division hand weaves each
The Oak Company is made up of two divisions: the Cutting Division cuts oak to the desired lengths and the Assembly Division uses the oak to manufacture tables.During its first year of operation, the
Gabriel’s Guacamole manufactures guacamole in one-litre tubs for the restaurant industry. The following information relates to Gabriel’s manufacturing operations for the month of May. Inventory
Goodman Products has the following balances for its accounts for the quarter ending March 31:At the beginning of the quarter (January 1), the following balances for inventories were reported:Prepare
Acme Fireworks had sales in June of \($350,000\) for its stores in Hamilton, Vancouver, and Calgary. The beginning merchandise inventories for June and July were \($120,000\) and \($135,000,\)
The following transactions relate to Mammoth Product Company for the year ended December 31, 2012:Prepare the following:a. Cost of goods manufactured statementb. Cost of goods sold statementc.
The following information is taken from the records of Harry Jingle Pens for September: Purchases of direct materials Sales $ 8,000,000 32,000,000 Selling and administrative costs 3,800,000 Direct
The Micron Corporation produces semiconductor chips that are used by the computer industry. The direct materials are added at the beginning of the production process, while conversion costs are added
Arnold's Custom Log Beds manufactures log beds in a production line. Direct materials are added at the beginning of the production process. Conversion costs are consumed evenly throughout production.
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