Chapter 23
Chapter 24
Chapter 25
Chapter 26
100
The variance that shows the difference between actual results and expected results based on actual sales volume
Flexible budget variance
100
Three advantages to decentralized management are:
1. Frees top management time;
2. Supports use of expert knowledge;
3. Improves customer relations;
4. Provides training;
5. Improves motivation and retention
100
Define relevant information
Future costs or revenues that differ between alternatives
100
A company is planning to replace an old machine with a new one. Define one sunk cost.
The original cost of the old equipment
200
A sales price, cost or quantity that is expected under normal conditions
A standard
200
Name two types of responsibility centers
Cost, revenue, profit and investment
200
The income statement for Sweet Dreams Company is divided by its two product lines, blankets and pillows, as follows:
Blankets Pillows Total
Sales revenue$620,000$320,000$940,000
Variable costs 465,000 260,000725,000
Contribution margin155,00060,000215,000
Fixed costs 66,000 106,000172,000
Operating income (loss)$89,000$(46,000)$43,000
If Sweet Dreams can eliminate total fixed costs of $32,000 by dropping the pillows line, operating income will
Decrease by $28,000.
Total Profits with pillows $43,000
Profits without pillows $15,000
New contribution margin = $155,000
New fixed costs 140,000
= New operating income $15,000
200
Zoey Company is considering purchasing new equipment that costs $726,000. Its management estimates that the equipment will generate cash inflows as follows:
Year 1$202,000
2 202,000
3 264,000
4 264,000
5 160,000
The company's required rate of return is 10%. Using the factors in the table below, calculate the present value of the cash inflows. (Round all calculations to the nearest whole dollar.)
Present value of $1:
6% 7% 8% 9% 10%
10.9430.9350.9260.9170.909
20.8900.8730.8570.8420.826
30.8400.8160.7940.7720.751
40.7920.7630.7350.7080.683
50.7470.7130.6810.6500.621
$828,406
300
A favorable direct materials cost variance would indicate
The price paid for direct materials was less than standard
300
Name the four quadrants in the balanced scorecard
Financial, customer, internal business practice, and learning and growth
300
Effie Corporation produces two products, P and Q. P sells for $8.00 per unit; Q sells for $6.00 per unit. Variable costs for P and Q are $2.00 and $5.00, respectively. Fixed costs are $1.00 and $2.00 per unit, respectively. There are a maximum of 7300 direct labor hours per month available for producing the two products. Product P requires 2.00 direct labor hours per unit, and product Q requires 4.00 direct labor hours per unit. The company can sell as many of either product as it can produce. The product that Effie should produce is
Product P - highest CM/CR per unit
300
Two methods of financial analysis that use the theory of time value of money are
Net present value
Internal rate of return
400
Allen's Boats produces deck chairs. It has the following standards for direct materials: 2 pounds per unit at $11 per pound.
Allen's produced 3,000 deck chairs this month. It used 6,500 pounds of materials and paid $99,300 for such.
Allen's direct material efficiency variance is
$5,500 unfavorable
400
Pen Inc. has the following data:
Operating income for year $100,000
Sales for year $500,000
Assets Jan 1 $580,000
Assets Dec 31 $610,000
The return on investment for the year is
16.81%
Income $100,000
/ Avg assets $595,000
400
Voltaic Electronics uses a standard part in the manufacture of different types of radios. The total cost of producing 36,000 parts is $110,000, which includes fixed costs of $50,000 and variable costs of $60,000. The company can buy the part from an outside supplier for $1 per unit and avoid 30% of the fixed costs. Assume that the company can use the freed manufacturing space to make another product that can earn a profit of $16,000. If Voltaic outsources, the effect on operating income will be _______
Increase $55,000
400
Nubela Manufacturing is considering an investment proposal with the following data:
Proposal X
Investment$10,700,000
Useful life 5 years
Estimated annual net cash inflows for 5 years$2,140,000
Residual value$50,000
Depreciation method Straight-line
Required rate of return 12%
The payback period for Proposal X is
5 years
10,700,000 / 2,140,000 = 5 years
500
Home Decor Company manufactures special metallic materials for luxury homes that require highly skilled labor. Home Decor uses standard costs to prepare its flexible budget. For the first quarter of the year, direct materials and direct labor standards for one of their popular products were as follows:
Direct materials: 3 pounds per unit; $3 per pound
Direct labor: 4 hours per unit; $16 per hour
Home Decor produced 4000 units during the quarter. At the end of the quarter, an examination of the labor costs records showed that the company used 25,000 direct labor hours and actual total direct labor costs were $372,000. The direct labor cost variance is: (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)
$28,000 Favorable
500
Target Company has the following data:
Operating income $125,000
Sales $500,000
Average assets $300,000
Debt $100,000
RRR 15%
The residual income for Target is
$80,000
Operating income $125,000
less:
RRR 15%
* Assets $300,000
= Required return $45,000
Equals residual income $80,000
500
Fowler Company is a price-taker and uses target pricing. Refer to the following information:
Production volume601,000 units per year
Market price$30 per unit
Desired operating income17% of total assets
Total assets$13,800,000
Variable cost per unit$18 per unit
Fixed cost per year$5,500,000 per year
With the current cost structure, Fowler cannot achieve its profit goals. It will have to reduce either the fixed costs or the variable costs. Assuming that variable costs cannot be reduced, what do fixed costs need to be to achieve Fowler's profit goals?
$4,866,000
500
1. If the IRR of a project is 16% and the discount rate is 12%, what impact does this have on the net present value?
2. If the discount rate of a project is 12% and the net present value = 0, what impact does that have on the IRR?
1. The NPV would be positive
2. The IRR is 12%