1. Explain why less profitable customers may become more profitable if a supplier switches to activity based pricing . Give an example. ( 2 Marks)

1. Sandras Super School Inc. is situated on the waterfront in Montreal and has won awards for her amazing grounds. She has 3 full time gardeners who have worked for her for 10 years. She is considering outsourcing the maintenance of these grounds and has received a bid from Joes Gardening for $300,000 per year. Joe promises to maintain the grounds in a comparable manner. Sandras costs for the maintenance in the previous year was a total of $300,000, including:

Salary of gardeners $195,000

Plant materials 80,000

Fertilizer 10,000

Fuel 12,000

Depreciation of equipment 12,000

Total $309,000

A. Analyze the one-year financial impact of outsourcing the maintenance (3)

B. Discuss the qualitative factors that should be considered in the decision (2)

3. Why do businesses consider time value of money before making an investment decision? (1 Marks)

4. Sandras Diversified Corp. has some ideas to develop new and exciting products. She thinks that target costing is the way to go. Why would she include members from the executive management team from departments such as engineering, marketing and finance as the team to implement the strategy? (2 Marks)

5. Why does capital budgeting rely on analysis of cash flows rather than on net income? Use an example to explain. (1` Marks)

6. Sandra thinks Hockey Cards cards are a good investment so she spends $32,000 on a mint condition 1942 Maurice Richard card. She expects the card to increase in value 10 percent per year for the next 15 years. How much will her card be worth after 15 years? (1 Marks)

7. Sandras Special Memories is a company that creates family and group photographic portraits. She has over 50 stores in Major Malls and busy downtown areas across Canada. She is just contemplating an online business. The major investment required will be for designing the Website, security for payment processing and confidentiality, and of course whatever technology is required to be successful. What potential advantages or disadvantages will be difficult to quantify from a capital investment standpoint?. 3 Marks

Each MCQ is worth .5

8.Which of the following would not be relevant in a make-or-buy decision?

a. Direct materials

b. Factory depreciation

c. Direct labor

d. Variable overhead

Solution

9. Which of the following is not a capital budgeting decision?

a. Purchasing new equipment

b. Replacing old equipment

c. Producing a film project

d. Planning for retirement

Solution

10. Capital investment decisions often involve all of the following except ________.

a. qualitative factors or considerations

b. short periods of time

c. large amounts of money

d. risk

Solution

11. The process that determines the present value of a single payment or stream of payments to be received is ________.

a. compounding

b. discounting

c. annuity

d. lump-sum

Solution

12. Which of the following discounts future cash flows to their present value at the expected rate of return, and compares that to the initial investment?

a. internal rate of return (IRR) method

b. net present value (NPV)

c. discounted cash flow model

d. future value method

Solution

13. The process of reinvesting interest earned to generate additional earnings over time is ________.

a. compounding

b. discounting

c. annuity

d. lump-sum

Solution

14. Why does a company use a standard costing system?

a. to identify variances from actual cost that assist them in maintaining profits

b. to identify nonperformers in the workplace

c. to identify what vendors are unreliable

d. to identify defective materials

Solution

15. The weighted average cost of debt and equity financing is called:

a. cost of capital

b. internal rate of return

c. discounted rate of return

d. accounting rate of return

Solution

16. Capital budgeting decisions are investment decisions involving the acquisition of:

a. long-lived liabilities

b. long-lived assets

c. current liabilities

d. current assets

Solution

17. Differences between budgeted costs and actual costs are called:

A. differences.

B. exceptions.

C. variances.

D. estimates.

Solution