Short Term Business Decisions
Short Term Business Decisions 2
Capital Investment Decisions
Comparison of Capital Investment Analysis Methods
Miscellaneous
100
What is the difference between a relevant decision and an irrelevant decision?
Relevant • Expected future data • Differs among alternatives Irrelevant • Does not affect the decision • Sunk costs
100
What is opportunity cost?
What is the benefit given up by not choosing an alternative course of action.
100
What is capital budgeting?
What is the process of planning the investment in long-term assets
100
What are the four Capital Investment Analysis Methods?
What is Payback, Accounting Rate of Return (ARR), Net Present Value (NPV), Internal Rate of Return (IRR)
100
Testing the results of an investment analysis with varying assumptions can be defined as:
What is sensitivity analysis
200
Give an example of financial factor and a non-financial factor.
What is Financial factor- price of new printer, non-financial factor- employee morale
200
When should management consider dropping a business division?
What is when the divisions avoidable fixed costs are greater than the contribution margin.
200
What is the formula to calculate the Accounting rate of return?
What is ARR= Average annual operating income/average amount invested
200
Which two methods do not take into account the time value of money?
What is Payback period and Accounting rate of return (ARR)
200
What pricing method does a price taker use?
What is target pricing method
300
In a special sales order decision, incremental fixed costs which would be incurred because of an additional purchase of equipment would be relevant or irrelevant to the decision?
What is Relevant
300
The sales price of toaster ovens is $54 and the variable costs are $39. The sales price of bread machine is $180 and the variable costs are $68. Easy Cook can manufacture 6 toaster ovens per machine hour and 2 bread machines per machine hour. What is the contribution margin per machine hour for toaster oven?
What is $90
300
Bob’s Landscaping is considering investing in new lawnmowers that cost $225,000, and have a residual value of $15,000, and are expected to have a useful life of 7 years. Calculate the average amount invested in the asset that should be used for calculating the accounting rate of return.
What is $120,000
300
The term net present value means:
What is the difference between the present value of the net cash inflows and the investment's cost.
300
The sales price of toaster ovens is $54 and the variable costs are $39. The sales price of bread machine is $180 and the variable costs are $68. Easy Cook can manufacture 6 toaster ovens per machine hour and 2 bread machines per machine hour. What is the contribution margin per machine hour for bread machines?
What is $224
400
The following information is given about Bob's Production: Production volume: 500,000 units per year, Market price: $24 per unit, Desired operating profit: 12% of total assets, and total assets: 12,500,000. The production is a price taker and uses target pricing. How much is the target full cost for the year?
What is $12,000,000
400
The sales price of Bedford Lamp is $37 and the variable costs are $20 and the machine hours required for 1 lamp are 2. The sales price of Lowell Lamp is $63 and the variable costs are $32 and the machine hours required for 1 lamp are 6. What is the contribution margin per unit for the Bedford Lamp?
What is $8.50 per machine hour
400
See worksheet #2
What is Proposal X=9.53 years & Proposal Y=6.63 years
400
Which capital investment analysis methods ignore depreciation expense?
What is Net Present Value (NPV) and Internal Rate of Return (IRR)
400
See worksheet #1
What is a: baseball helmets, b:Operating income will decrease by (1500), c:The divisions avoidable fixed costs are greater than its contribution margin.
500
Target full cost: $565,000 per year, Actual fixed cost: $180,000 per year, Actual variable cost: $2.50 per unit, and Production volume: 325,000 units per year. Bob's Production is a price taker and uses target pricing. His actual costs are currently higher than target full cost, assuming his fixed costs cannot be reduced, how much is the target variable cost per unit.
What is $1.18 per unit
500
The sales price of Bedford Lamp is $37 and the variable costs are $20 and the machine hours required for 1 lamp are 2. The sales price of Lowell Lamp is $63 and the variable costs are $32 and the machine hours required for 1 lamp are 6. What is the contribution margin per unit for the Lowell Lamp?
What is $5.16 per machine hour
500
See worksheet #3
What is ARR of Project B: 4.9% ARR of Project C: 13%
500
What is a post audit?
What is the last step in the capital budgeting process is control which compares the actual results with the projected results.
500
Bob’s Landscaping is considering an investment in new lawnmowers costing $450,000. The lawnmowers will be depreciated on a straight line basis over a 10 year life and is expected to have a salvage value of $25,000. The lawnmowers are expected to generate net cash inflows of $1,200,000 in total during the 10 year life. What is the accounting rate of return?
What is 31%
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