Roman Knoze is considering two investments. Each will cost $20,000 initially. Project 1 will return annual cash flows of $10,000 in each of three years. Project 2 will return $5,000 in year 1, $10,000 in year 2, and $15,000 in year 3. Roman requires a minimum rate of return of 10%. What is the net present value of Project 2? Would the project be accepted or rejected? Hint: Refer to present value tables. a. $24,070 and accept b. $20,000 and accept c. $5,670 and reject d. $2,530 and reject e. $4,070 and accept 38. Bonner Milling Company purchases logs and mills them into various grades of lumber. During the sawing and planing process, a considerable amount of sawdust is generated. Currently, Bonner sells the sawdust to a particle board manufacturer for $50 per truckload. Bonner is considering processing the sawdust into particle board itself. One truckload of sawdust can be made into 20 sheets of particle board selling for $8 per sheet. Further processing costs are $7 per board. Assume that the cost of logs falls by half. Should Bonner sell the sawdust at split-off or process it further? a. Sell at split-off, the reduction in the cost of the logs is irrelevant b. Process further because the further processing costs are irrelevant. c. Process further, the reduction in the cost of the logs will lower further processing costs. d. Process further, the reduction in the cost of logs makes that option more profitable than it was before e. Sell at split-off because the decrease in the cost of the logs makes that option more profitable than it was before. 31. Huge, Inc. has many divisions that are evaluated on the basis of ROI. One division, Alpha, makes boxes. A second division, Beta, makes candy and needs 50,000 boxes per year. Alpha incurs the following costs for one box: Direct materials $0.20 Direct labor 0.70 Variable overhead 0.10 Fixed overhead 0.23 Total $1.23 Alpha has capacity to make 500,000 boxes per year. Beta currently buys its boxes from an outside supplier for $1.40 each (the same price that Alpha receives). Refer to Figure 11-5. Assume that Hugo, Inc., allows division managers to negotiate transfer price. Alpha is producing and selling 400,000 boxes. If Alpha and Beta agree to transfer boxes, what is the floor of the bargaining range and which division sets it? a. $1.23; Beta b. $1.40; Alpha c. $1.40; Beta d. $1.00; Alpha e. $1.23; Alpha 11. Wilmer Company produces two products: OldX and NewX. Budgeted sales for four months are as follows: Wilmer's ending inventory policy is that OldX should have 10% of next month's sales in ending inventory and NewX should have 20% of next month's sales in ending inventory. On May 1, there were 1,000 units of OldX and 9,000 units of NewX. NewX requires 4 units of component A. (OldX does not use component A.) There were 2,100 units of component A in inventory on May 1. Wilmer wants to have 30 percent of the following month's production needs in inventory for Component A. What is the budgeted amount of component A to be purchased in May? a. 66,600 b.64,500 c.288,000 d.264,300 e.180,000 12. Wilmer Company produces two products: OldX and NewX. Budgeted sales for four months are as follows: Wilmer's ending inventory policy is that OldX should have 10% of next month's sales in ending inventory and NewX should have 20% of next month's sales in ending inventory. On May 1, there were 1,000 units of OldX and 9,000 units of NewX. NewX requires 4 units of component A. (OldX does not use component A.) There were 2,100 units of component A in inventory on May 1. Wilmer wants to have 30 percent of the following month's production needs in inventory for Component A. What is the desired ending inventory of component A for May? a. 180,000 b. 2,100 c. 72,000 d. 86,400 e. 58,500 20. Caballero Corporation produces high-quality leather saddles. The company has a standard cost system and has set the following standards for materials and labor: Leather (20 strips @ $15) $300 Direct Labor (15 Hours @ $15) 225 Total Prime cost 525 During the year Caballero produced 150 saddles. Actual leather purchased was 3,100 strips, at $12 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 2,500 hours at $16 per hour. Calculate the labor rate variance and the labor efficiency variance, respectively. a. $2,250 U and $4,000 U b. $2,500 U and $3,750 U c. $2,250 F and $4,000 F d. $2,500 F and $3,750 F During the year Caballero produced 150 saddles. Actual leather purchased was 3,100 strips, at $12 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 2,500 hours at $16 per hour. Leather (20 strips @ $15) $300 Direct Labor (15 Hours @ $15) 225 Total Prime cost 525 Compute the materials price variance and the materials usage variance, respectively. a.$9,000 F and $1,200 U b.$9,300 F and $1,500 U c.$9,300 U and $1,500 F d.$9,000 U and $1,200 F 7. Last year, Delbert Company produced 10,000 units and sold 9,000 units at a price of $9. Costs for last year were as follows: Direct materials $10,000 Direct labor 15,000 Variable factory overhead 5,000 Fixed factory overhead 20,000 Variable selling expense 7,200 Fixed selling expense 5,000 Fixed administrative expense 12,000 Fixed factory overhead is applied based on expected production. Last year, Delbert expected to produce 10,000 Assuming that beginning inventory was zero, what is the value of ending inventory under variable costing? a.$5,720 b.$3,000 c.$5,000 d.$3,720 e.$2,000