1. Kipo Inc. manufactures oversized, purple panther stuffed animals. Its cost data is as follows:

Direct materials: $6

Direct labor: 5

Variable manufacturing overhead: 1

Fixed manufacturing overhead (annual): 32,000

Period costs are expected to be $2 per unit in variable selling costs and $40,000 for fixed selling & administrative costs. The company estimates sales of 8,000 units. Based on this information, what is Kipo's product cost per unit?

A. $32,012

B. $18

C. $23

D. $16

2. Kipo Inc. manufactures oversized, purple panther stuffed animals. Its cost data is as follows:

Direct materials: $6

Direct labor: 5

Variable manufacturing overhead: 1

Fixed manufacturing overhead (annual): 32,000

Period costs are expected to be $2 per unit in variable selling costs and $40,000 for fixed selling & administrative costs. The company estimates sales of 8,000 units. Based on this information, what is Kipo's total cost per unit?

A. $23

B. $18

C. $16

D. $32,012

3. Kipo Inc. manufactures oversized, purple panther stuffed animals. Its cost data is as follows:

Direct materials: $6

Direct labor: 5

Variable manufacturing overhead: 1

Fixed manufacturing overhead (annual): 32,000

Period costs are expected to be $2 per unit in variable selling costs and $40,000 for fixed selling & administrative costs. The company estimates sales of 8,000 units. Assume Kipo plans to use the Cost-Plus Pricing Method and desires a markup of 30%. Based on this information, what will be Kipo's sales price per unit?

A. $30

B. $21

C. $37

D. $23

4. An example of a cash outflow for a new capital asset would be:

A. the salvage value of the new asset

B. increased operating costs

C. all of these would be considered cash outflows

D. the sales revenue to be generated from the asset

5. An example of a cash inflow for a new capital asset would be:

A. decreased operating costs

B. the decrease in sales revenue

C. increased operating costs

D. the purchase price of the new asset

6. Hookey Company is considering purchasing a new capital asset. Find below the relevant information:

Purchase price: $12,000

Cash sales to be generated annually: $3,200

Decreased operating costs (annually): $200

Annual maintenance costs: $150

How much is the annual net cash flows for this capital asset?

A. $3,200

B. $3,000

C. $3,400

D. $3,250

7. Hookey Company is considering purchasing a new capital asset. Find below the relevant information:

Purchase price: $12,000

Cash sales to be generated annually: $3,200

Decreased operating costs (annually): $200

Annual maintenance costs: $150

The asset is advertised to last for 10 years, the company expects to use it for 5 years. What is the payback period for the asset?

A. 5 years

B. 4.2 years

C. 3.7 years

D. 10 years

8. Ultimate Dream House Inc. is considering purchasing a new machine for $400,000. The machine has a $50,000 salvage value and 7-year life. It is estimated the machine will generate net income of $105,000. Compute the cash payback period for the machine.

A. 2.58 years

B. 3.81 years

C. 2.47 years

D. 7.27 years

9. Which of the following is not a screening tool used to evaluate capital assets?

A. Payback Period

B. Accounting rate of return

C. Cutoff Rate of Return

D. Net Present Value

10. When the annual cash flows from a capital investment are the same each year, the appropriate table to use is the:

A. Present value of an annuity table

B. Future value of 1 table

C. Present value of 1 table

D. Future value of an annuity table

11. The capital evaluation method that considers accrual based income generated by the investment is the:

A. accounting rate of return method

B. net present value method

C. payback period method

D. internal rate of return method

12. If a capital asset has a net present value (NPV) of exactly 0, the investment should be:

A. accepted, since the required rate of return is generated by the investment

B. rejected, since the asset's return is less that the required rate

C. rejected, since the asset's return exceeds the required rate of return.

D. accepted, since the asset's return is less that the required rate

13. Incremental analysis is the process of:

A. identifying financial data that are mixed under alternative courses of action.

B. Selecting the right coffee for management.

C. Identifying financial data that do not change under alternative courses of action.

D. Identifying financial data that do change under alternative courses of action.

14. Thompson & Curry Inc., manufacturer of basketballs, has a factory machine that originally cost $110,000. The machine has a balance in accumulated depreciation of $70,000, so its book value is $40,000. It has a remaining useful life of four years. The company is considering replacing this machine with a new machine. A new machine is available that costs $120,000. It is expected to have no salvage value and last four years. The book value of the old machine:

A. is an opportunity cost

B. is a relevant cost

C. is a sunk cost

D. should be considered in incremental analysis of whether or not to purchase a new machine.

15.

Identify the true statement regarding special orders.

A. Special orders are requests from customers for price concessions on its regular products.

B. A company should not accept an order for its product at less than its regular sales price.

C. A special one-time order should be accepted if the unit sales price is less than the unit variable cost.

D. Fixed costs should always be considered when determining to accept special offers.

16. If an unprofitable product is eliminated:

A. It goes to the island of misfit products

B. The company's net income will always decrease

C. Variable expenses of the eliminated product will have to be absorbed by other products.

D. Fixed expenses of the eliminated product may have to be absorbed by other products.

17. Cornerstone Company incurs a cost of $35 per unit, of which $20 is variable, to make a product that normally sells for $58. A foreign wholesale offers to buy 6,000 units at $30 each. Cornerstone will incur additional costs of $3 per unit to imprint a logo and to pay for shipping. Compute the increase or decrease in net income Cornerstone will realize by accepting the special order, assuming Cornerstone has sufficient excess operating capacity. What should Cornerstone Company do?

A. Decline the special order since net loss from the offer is $30,000

B. Accept the special order since net income from the offer is positive by $60,000

C. Decline the special order since the net loss from the special order is $48,000

D. Accept the special order since net income from the offer is positive by $42,000

18. Which of the following are considered relevant costs?

A. Out-of-pocket and sunk

B. Sunk, opportunity, and out-of-pocket

C. Opportunity and out-of-pocket

D. Sunk and opportunity

19. Ring Light Beauty produces face cream. Each bottle of face cream costs $10 to produce and can be sold for $13. The bottles can be sold as is, or processed further into sunscreen at an additional cost of $7 each. Ring Light Beauty could sell the sunscreen bottles for $23 each.

A. Face cream should not be processed further as it will decrease profit by $6 per unit sold.

B. Face cream should be processed further as it will increase profit by $6 per unit sold.

C. Face cream should not be processed further as it will decrease profit by $3 per unit sold.

D. Face cream should be processed further as it will increase profit by $3 per unit sold.

20.

Identify the false statement regarding the cash payback period method:

A. This method fails to consider the profitability after the payback period has been reached.

B. This method is generally used as an initial screening tool for new capital investments.

C. This method does consider the time value of money in its computation.

D. Generally, management prefers a shorter payback period on its capital investments.

21. A positive net present value means that the:

A. Project's rate of return exceeds the required rate of return.

B. Project has found happiness

C. Project's rate of return is less than the cutoff rate.

D. Project's rate of return is the same as the hurdle rate.

22. Tikky Tok Inc. produces several models of clocks. An outside supplier has offered to produce the commercial clocks for Tikky for $420 each. Tikky needs 1,200 clocks annually. Tikky Tok has provided the following unit costs for its commercial clocks:

Direct materials: $100

Direct labor: 140

Variable overhead: 80

Fixed overhead (40% avoidable): 150

Instructions:

Using incremental analysis, should the company continue to make the product or buy it from the outside supplier? Why? Cite your calculations in your response.