1)

Chang Industries has 1,900 defective units of product that have already cost $13.90 each to produce. A salvage company will purchase the defective units as they are for $4.90 each. Chang's production manager reports that the defects can be corrected for $6.10 per unit, enabling them to be sold at their regular market price of $20.80. The incremental income or loss on reworking the units is:

$18,620 loss.

$18,620 income.

$11,590 loss.

$30,210 income.

$27,930 income.

2)

Maxim manufactures a hamster food product called Green Health. Maxim currently has 10,000 bags of Green Health on hand. The variable production costs per bag are $2.40 and total fixed costs are $10,000. The hamster food can be sold as it is for $9.65 per bag or be processed further into Premium Green and Green Deluxe at an additional $2,600 cost. The additional processing will yield 10,000 bags of Premium Green and 3,600 bags of Green Deluxe, which can be sold for $8.65 and $6.65 per bag, respectively. The net advantage (incremental income) of processing Green Health further into Premium Green and Green Deluxe would be:

$110,440.

$107,840.

$13,940.

$11,340.

$2,600.

3)

Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3.10 per unit. Bluebird currently produces and sells 75,000 units at $7.10 each. This level represents 80% of its capacity. Production costs for these units are $3.65 per unit, which includes $2.30 variable cost and $1.35 fixed cost. If Bluebird accepts this additional business, the effect on net income will be:

$46,500 increase.

$12,000 increase.

$34,500 increase.

$8,250 decrease.

$34,500 decrease.

4)

Markson Company had the following results of operations for the past year:

Sales (8,000 units at $19.60)		$156,800
Variable manufacturing costs	$84,400
Fixed manufacturing costs	14,600
Variable selling and administrative expenses	10,400
Fixed selling and administrative expenses	19,600	(129,000)
Operating income		$27,800

A foreign company whose sales will not affect Markson's market offers to buy 2,000 units at $13.40 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $1,560 for the purchase of special tools. If Markson accepts this additional business, its profits will:

Increase by $3,100.

Decrease by $5,450.

Decrease by $1,560.

Increase by $1,540.

Decrease by $4,660.

5)

A company is considering the purchase of a new piece of equipment for $93,200. Predicted annual cash inflows from this investment are $38,000 (year 1), $29,000 (year 2), $19,000 (year 3), $13,000 (year 4) and $8,000 (year 5). The payback period is:

4.45 years.

3.55 years.

2.55 years.

4.21 years.

3.00 years.

6)

A company is planning to purchase a machine that will cost $30,600, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine?

Sales		$123,000
Costs:
Manufacturing	$53,100
Depreciation on machine	5,100
Selling and administrative expenses	41,000	(99,200)
Income before taxes		$23,800
Income tax (30%)		(7,140)
Net income		$16,660

108.89%.

50.00%.

54.44%.

33.33%.

5.10%.

7)

The following present value factors are provided for use in this problem.

Periods	Present Value of $1 at 8%	Present Value of anAnnuity of $1 at 8%
1	0.9259	0.9259
2	0.8573	1.7833
3	0.7938	2.5771
4	0.7350	3.3121

Xavier Co. wants to purchase a machine for $37,100 with a four year life and a $1,100 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $12,100 in each of the four years. What is the machine's net present value (round to the nearest whole dollar)?

$3,785.

$2,976.

$40,885.

$(3,785).

$(2,976).

8)

Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considering two different investments. Each require an initial investment of $14,400 and will produce cash flows as follows:

End of Year	Investment
	A	B
1	$9,600	$0
2	9,600	0
3	9,600	28,800

The present value factors of $1 each year at 15% are:

1	0.8696
2	0.7561
3	.6575

The present value of an annuity of $1 for 3 years at 15% is 2.2832 The net present value of Investment A is:

$18,936.

$(14,400).

$14,400.

$(21,919).

$7,519.

9)

Paxton Company can produce a component of its product that incurs the following costs per unit: direct materials, $10.80; direct labor, $14.80, variable overhead, $3.80 and fixed overhead, $8.80. An outside supplier has offered to sell the product to Axle for $38.20. Compute the net incremental cost or savings of buying the component.

$8.80 savings per unit.

$3.80 cost per unit.

$0 cost or savings per unit.

$8.80 cost per unit.

$4 savings per unit.

10)

Granfield Company has a piece of manufacturing equipment with a book value of $36,000 and a remaining useful life of four years. At the end of the four years the equipment will have a zero salvage value. The market value of the equipment is currently $21,200. Granfield can purchase a new machine for $112,000 and receive $21,200 in return for trading in its old machine. The new machine will reduce variable manufacturing costs by $18,200 per year over the four-year life of the new machine. The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is:

$18,000 increase

$72,800 decrease

$14,800 decrease

$49,200 increase

$18,000 decrease