Principal Managerial Accounting

1.

Fuller Industries is considering replacing a machine that is presently used in its production process. Which of the following amounts represents a sunk cost? Replacement Old Machine Machine Original cost $55,000 $46,000 Remaining useful life in years 5 5 Current age in years 5 0 Book value $30,000 Current disposal value in cash $9,000 Future disposal value in cash (in 5 years) $0 $0 Annual cash operating costs $7,000 $4,500 O A. $55,000 0 B. $30,000 0 C. $46,000 0 D. $9,000 Rolling Hills Golf Course is planning for the coming golfing season. Investors would like to earn a 10% return on the company's $60,000,000 of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $32,000,000 for the season. About 500,000 rounds of golf are expected to be played each year. Variable costs are about $15 per round of golf. Rolling Hills Golf Course has a favorable reputation in the area and, therefore, has some control over the sales price of a round of golf. Using a cost - plus pricing approach, what sales price should Rolling Hills charge for a round of golf to achieve the desired profit? (Round your final answer to the nearest dollar.) O A. $49 O B. $79 O c. $91 O D. $64Armor Sports, Inc. has two product linesbatting helmets and football helmets. The income statement data for the most recent year is as follows: Total Batting Helmets Football Helmets Sales revenue $850,000 $500,000 $350,000 Variable costs (540,000) (250,000) (290,000) Contribution margin $310,000 $250,000 $60,000 Fixed costs (170,000) (70,000) (100,000) Operating income (loss) $140,000 $180,000 $(40,000) What is the effect of dropping football helmets line on the operating income of the company? (Assume that xed costs remain unchanged and that there would be no adverse effect on other sales.) O A. Operating income will decrease by $60,000. 0 B. Operating income will increase by $70,000. 0 c. Operating income will increase by $40,000. O D. Operating income will decrease by $350,000. Viper Avionics makes aircraft instrumentation. Its basic navigation radio requires $60 in variable costs and $2,000 per month in xed costs. Further processing the radio, to enhance its functionality, will require an additional $25 per unit of variable costs, plus an increase in fixed costs of $800 per month. The marketing manager believes that they would be able to increase the sales price of the radio from $260 to $300. Viper sells 30 radios per month. If Viper decides to further process the radio, monthly operating income would: O A. increase by $3,350 O B. decrease by $3,350 0 (2. decrease by $350 0 D. increase by $1,200 Pegasus Avionics makes aircraft instrumentation Its basic navigation radio requires $80 in variable costs and $4,000 per month in xed costs Pegasus sells 10 radios per month If the company further processes the radio, to enhance its functionality, it will require an additional $28 per unit of variable costs. plus an increase in xed costs of $280 per month. The current sales price of the radio is $300. The marketing manager is sure that Pegasus can charge a higher sales price for the improved version. At what sales price level would the new, improved radio begin to improve operating earnings? (Round to the nearest whole dollar.) O A. at a sales price of $408 0 B. at a sales price higher than $356 0 C. at a sales price of $300 0 D. at a sales price lower than $300 Mandell, Inc. is evaluating three possible investments in depreciable plant assets. The company uses the straight- line method of depreciation. The following information is available: Investment A Investment B Investment C Initial capital investment $280,000 $235,000 $340,000 Estimated useful life 8 years 7 years 10 years Estimated residual value $15,000 $20,000 $30,000 Estimated annual net cash ow for each year $54,000 $38,000 $67,000 Required rate of return 12% 12% 12% Rank the projects as to order of preference if based on the best payback period. 0 A. A, B, C O B. C, B, A O C. B, C, A O D. C, A, B