Question 1

Desired ending inventory is 80% of beginning inventory. If cost of goods sold is $300,000, which of the following statements is true regarding purchases?

	a.	Purchases will be more than cost of goods sold
	b.	Purchases will be 80% of cost of goods sold
	c.	Purchases will equal cost of goods sold
	d.	Purchases will be less than cost of goods sold

1 points

Question 2

Smith Industries is considering replacing a machine that is presently used in its production process. The following information is available:

	Old Machine	Replacement Machine
Original cost	$45,000	$35,000
Remaining useful life in years	5	5
Current age in years	5	0
Book value	$25,000
Current disposal value in cash	$8,000
Future disposal value in cash (in 5 years)	$0	$0
Annual cash operating costs	$7,000	$4,000

For a machine replacement decision which of the information provided in the table is a sunk cost?

	a.	The original cost of the old machine
	b.	The current disposal value of the old machine
	c.	The current annual operating cost of the old machine
	d.	Both A and B are correct

2 points

Question 3

Lowwater Sailmakers manufactures sails for sailboats. The company has the capacity to produce 25,000 sails per year, and is currently producing and selling 20,000 sails per year. The following information relates to current production:

Sale price per unit	$150
Variable costs per unit:
Manufacturing	$55
Marketing and administrative	$25
Total fixed costs:
Manufacturing	$640,000
Marketing and administrative	$280,000

If a special sales order is accepted for 5,000 sails at a price of $125 per unit, and fixed costs remain unchanged, what is the change in operating income?

	a.	Operating income decreases $5,000
	b.	Operating income increases $190,000
	c.	Operating income decreases $125,000.
	d.	Operating income increases $225,000.

2 points

Question 4

A March sales forecast projects that 10,000 units of Product A and 12,000 units of Product B are going to be sold at prices of $11 and $13, respectively. The desired ending inventory of Product A is 20% higher than the beginning inventory of 1,000 units. How much are total March sales for Product A anticipated to be?

	a.	$110,000
	b.	$130,000
	c.	$132,000
	d.	$156,000

1 points

Question 5

In a special sales order decision, incremental fixed costs incurred because of an additional purchase of equipment are considered to be:

	a.	relevant to the decision
	b.	irrelevant to the decision.
	c.	opportunity costs.
	d.	sunk costs.

2 points

Question 6

A company reported the following amounts of net income:

2006	$18,000
2007	$24,000
2008	$26,000

Which of the following is the percentage change in net income from 2007 to 2008?

	a.	2.00%
	b.	10.00%
	c.	8.33%
	d.	7.69%

1 points

Question 7

Simms Manufacturing is considering two alternative investment proposals with the following data:

	Proposal X	Proposal Y
Investment	$620,000	$400,000
Useful life	8 years	8 years
Estimated annual net cash inflows for 8 years	$130,000	$80,000
Residual value	$60,000	$0
Depreciation method	Straight-line	Straight-line
Required rate of return	14%	10%

How long is the payback period for Proposal X?

	a.	4.50 years
	b.	4.77 years
	c.	8 years
	d.	10.33 years

2 points

Question 8

Which of the following methods ignores the time value of money?

	a.	Payback
	b.	Internal rate of return
	c.	Profitability index
	d.	Net present value

1 points

Question 9

Which of the following is a common way to evaluate a company