of $500,000 in a land development project. It uses a discount rate of 9%, what is 16. Gamma Corporation is considering an investment a will yield cash flows of $200,000 for 5 years. The comp the net present value of the investment? Period 8% 9% 10% of $1 0.926 0.917 0.909 2 1.783 1.759 1.736 3 2.577 2.531 2.487 3.312 3.240 3.170 3.993 3.890 3.791 un A. $230,000 B. $278,000 C. $330,000 D. $200,000 E. $375,000 17. An opportunity cost A. Is an unavoidable cost B. Requires a current outlay of cash. C. Results from past managerial decisions. D. Is the lost benefit of choosing an alternative course of action. E. Is irrelevant in decision making. 18. An estimate of an asset's value to the company, calculated by discounting the future cash flows from the investment at an appropriate rate and then subtracting the initial cost of the investment, is known as: A. Annual net cash flows. B. Rate of return on investment C. Net present value. D. Payback period. E. Unamortized carrying value. 19. The time expected to pass before the net cash flows from an investment would return its initial cost is called the: A. Amortization period. B. Payback period. C. Interest period. D. Budgeting period. E. Discounted cash flow period. hiningy mokes in houne The vartisble eosts to make the component are $1.20 nth The company has been approached by a whenshe00 i h computer chips per month. Each chip uses a s sint the id s i 81,200 000 per mo ponent, rendy made and with acceptable quality The fived outs ate mivoidable, md Lightning would have no other use Nedonts me mavoidabl tN on phud i iisking the component. What is the effect on operating wal Nw..nwmhn-hws could stave % 40 000 per month in costs Ne costs would go up by 10,000 per month Ti Neonsould sve 1, 200,000 per month in costs or the Rlnviny wukd be th bst basi on whether to accept an investment fW1A+w ing would be the best baxb4 on whether to accept an investment oyuutunitY OF ot R. Ir it has a jseybaek peried in less than 10 years Ir the investments rate of return is higher than the company's current year required rate of return. D If the aounting ate of returm is sen E tt the net present value is negative 14 Which of the following is a eaptial budgeting method? A Return on assets B. Net present value C Inventory turnover D. Return on equity E Return on average investment. 1S. A cost that cannot be avoided or changed because it arises from a past decision, and is irrelevant to future decisions, is called aa) A. Uncontrollable cost. B. Incremental cost. C. Opportunity cost D. Out-of pocket cost E. Sunk cost. 1. Fixed costs that do not differ between two alternatives are: A, relevant to the decision B. considered opportunity costs C. considered ill elevant to the decl%ion D. important only if they are a material dollar amount E. classified as primary costs. 2. One of the keys to effective analysis of short-term business decisions is to: A. use the contribution margin format to properly separate costs (variable and B. use the traditional format to determine profit C. minimize all related expenses. D. eliminate any manufacturing constraints. E. none of the above. 3. In deciding whether to drop its electronics product line, a company's manage A. the variable and fixed costs it could save by dropping the product line. B. the revenues it would lose from dropping the product line. C. the effect of dropping the product line on the sales of its other products, lik D. the amount of unavoidable fixed costs. E. the contribution margin. 4. A business segment or product line is a candidate for elimination if: A. The income statement shows a loss. B. Revenues are less than last year. C. Costs have increased over 50%. D. Its revenues are less than its avoidable expenses. E. Variable and fixed expenses are greater than the previous year Potlatch Company manufactures sonars for fishing boats. Its Model 100 sells for $200. produces and sells 5,000 of them per year. Cost data are as follows: $105 per unit Variable manufacturing. Variable marketing. $5 per unit Fixed manufacturing Fixed marketing& admi$140,000 per year . $270,000 per year An ofter has come in for a one-time sale of 100 units at a special price of $120 per unit. Th eting manager says that the sale will not negatively affect the company's regular sales is plenty of excess capacity and the deal will not impact fixed costs in any way. What siis d that it will not require any variable marketing costs. The production manager effect of this deal on operating income? A. Operating income increases by $200 B. Operating income increases by $500 C. Operating income decreases by $1,000 D. Operating income decreases by E. Operating income increases by S 6. Macaulay Roller Skates Company has three product lines.D, E, and F. The following informa is available $70,000 $40,000 $30,000 .. (40.000) (20,000) (10,000) $30,000 $20,000 $20,000 15.000) (15.000) 25.000) $15.000 S5.000 ($5.000) Contribution margin... Fixed expenses The company is thinking of dropping product line F because it is showing an operating loss. Assuming fixed costs are unavoidable, if Macaulay drops product line F and does not replace it, v effect will this have on operating income? A. Operating income will increase $5,000. B. Operating income will decrease $20,000. C. Operating income will increase $25,000. D. Operating income will increase $20,00 E. Operating income will decrease $5,00 7. In making product mix decisions under constraining factors, which of the following is the key to choosing the product type to be maximized? A. Revenue per unit. B. Contribution margin per unit of product. C. Contribution margin per unit of the constraining factor. D. Gross profit per unit using traditional costing E. Variable cost per unit. s and bread machines. The 8. Healthier Living Company manufactures two products. toaster oven following data are available: Bread Machines Toaster Ovens Sale price..$8.$150 Variable cost$40 .$s 70 Each toaster oven can be produced in 2.5 machine hours and each bread machine can be produced in 4 machine hours. Healthier Living's production capacity is 1,800 machine hours per month. What is the contribution margin per machine hour for bread machines? A. $40 B. $240 C. S 20 D. $320 E. $ 80 9. A chemical company spent $530,000 to produce 150,000 gallons of a chemical which can be sold for $5.20 per gallon. The chemical can be further processed into a weed killer which can be sold for $7.20 per gallon; it will cost $270,000 to process the chemical into a weed killer. Which o f the following is true? A. To maximize operating income, the company should continue to sell the chemical as is B. If the company decides to process further, it will increase operating income by $280,000 C. If the company decides to process further, it will increase operating income by $30,000. D. If the company decides to process further, it will decrease operating income by $150,000. E. If the company decides to process further, it will decrease operating income by $130,000. 10. When a company is considering the option of processing its product further, to achieve higher sales revenues, they must ignore the: A. additional costs necessary to process further B. incremental revenue that can be earned if processed further C. increase in fixed costs. D. fact that will additional processing produce any environmental toxins E. cost that is required to produce the basic product, before processing further (joint costs). 11. The process of analyzing alternative investments and deciding which assets to acquire or sell is known as: A. Planning and control. B. Capital budgeting. C. Variance analysis D. Master budgeting. E. Managerial accounting. of $500,000 in a land development project. It uses a discount rate of 9%, what is 16. Gamma Corporation is considering an investment a will yield cash flows of $200,000 for 5 years. The comp the net present value of the investment? Period 8% 9% 10% of $1 0.926 0.917 0.909 2 1.783 1.759 1.736 3 2.577 2.531 2.487 3.312 3.240 3.170 3.993 3.890 3.791 un A. $230,000 B. $278,000 C. $330,000 D. $200,000 E. $375,000 17. An opportunity cost A. Is an unavoidable cost B. Requires a current outlay of cash. C. Results from past managerial decisions. D. Is the lost benefit of choosing an alternative course of action. E. Is irrelevant in decision making. 18. An estimate of an asset's value to the company, calculated by discounting the future cash flows from the investment at an appropriate rate and then subtracting the initial cost of the investment, is known as: A. Annual net cash flows. B. Rate of return on investment C. Net present value. D. Payback period. E. Unamortized carrying value. 19. The time expected to pass before the net cash flows from an investment would return its initial cost is called the: A. Amortization period. B. Payback period. C. Interest period. D. Budgeting period. E. Discounted cash flow period