1. assigned to basis would A) B) C) D) !.

A) B) C) D)

A good example of a common cost which normally could not be products on a segmented income statement except on an arbitrary be: product advertising outlays. salary of a corporation president. direct materials. the product manager s salary. "urnover is computed by dividing average operating assets into: invested capital. total assets. net operating income. sales.

#. A segment of a business responsible for both revenues and expenses would be called: A) a cost center. B) an investment center. C) a profit center. D) residual income. $. All other things being e%ual& if a division s traceable fixed expenses increase: A) the division s contribution margin ratio will decrease. B) the division s segment margin ratio will remain the same. C) the division s segment margin will decrease. D) the overall company profit will remain the same. '. A) B) C) D) .. A) B) C) D) (n computing the margin in a )*( analysis& which of the following is ,ales in the denominator -et operating income in the denominator Average operating assets in the denominator )esidual income in the denominator -et operating income is defined as: sales minus variable expenses. sales minus variable expenses and traceable fixed expenses. contribution margin minus traceable and common fixed expenses. net income plus interest and taxes.

used+

/. ,uppose a manager is to be measured by residual income. 0hich of the following will not result in an increase in the residual income figure for this manager& assuming other factors remain constant+ A) An increase in sales. B) An increase in the minimum re%uired rate of return. C) A decrease in expenses. D) A decrease in operating assets.

1. During April& Division D of Carney Company had a segment margin ratio of 1'2& a variable expense ratio of .32 of sales& and traceable fixed expenses of 41'&333. Division D s sales were closest to: A) 4133&333. B) 4.3&333. C) 4##&###. D) 4!!&'33. 5. Cable Company had the following results for the year 6ust ended: -et operating income "urnover $ )eturn on investment A) B) C) D) 4!&'33 !32

Cable Company s average operating assets during the year were: 4'3&333. 4!33&333. 41!&'33. 413&333.

7se the following to answer %uestion 13: (eso Company has two stores: 8 and 9. During -ovember& (eso Company reported a net income of 4#3&333 and sales of 4$'3&333. "he contribution margin in ,tore 8 was 4133&333& or $32 of sales. "he segment margin in ,tore 9 was 4#3&333& or 1'2 of sales. "raceable fixed expenses are 4.3&333 in ,tore 8& and 4$3&333 in ,tore 9. 13. A) B) C) D) "he segment margin ratio in ,tore 8 was: 1.2. !$2. $32. .32.

7se the following to answer %uestions 11:1!: "he following information is available on Company A: ,ales 4533&333 -et operating income #.&333 ,toc;holders e%uity 133&333 Average operating assets 113&333 <inimum re%uired rate of return 1'2 11. A) B) C) D) 1!. Company A s residual income is: 45&333. 4!1&333. 4$'&333. 4!$&333. Company A s return on investment =)*() is:

A) B) C) D)

$2. 1'2. !32. #.2.

7se the following to answer %uestion 1#: "he following data are available for the ,outh Division of )edride >roducts& (nc. and the single product it ma;es: 7nit selling price 4!3 ?ariable cost per unit 41! Annual fixed costs 4!13&333 Average operating assets 41&'33&333 1#. (f ,outh wants a residual income of 4'3&333 and the minimum re%uired rate of return is 132& the annual turnover will have to be: A) 3.#!. B) 3.13. C) 1.!'. D) 1.'3. 7se the following to answer %uestion 1$: "he following selected data pertain to Bec; Co. s Beam Division for last year: ,ales 4$33&333 ?ariable expenses 4133&333 "raceable fixed expenses 4!'3&333 Average operating assets 4!33&333 <inimum re%uired rate of return !32 1$. A) B) C) D) @ow much is the return on the investment+ !'2 !32 1!.'2 $32

1'. Consider a decision facing a firm of either accepting or re6ecting a special offer for one of its products. A cost that is not relevant is: A) direct materials. B) variable overhead. C) fixed overhead that will be avoided if the special offer is accepted. D) common fixed overhead that will continue if the special offer is not accepted. 1.. A study has been conducted to determine if >roduct A should be dropped. ,ales of the product total 4!33&333 per yearA variable expenses total 41$3&333 per year. Bixed expenses charged to the product total 453&333 per year. "he company estimates that 4$3&333 of these fixed expenses will continue even if

the product is dropped. "hese data indicate that if >roduct A is dropped& the company s overall net operating income would: A) decrease by 4!3&333 per year. B) increase by 4!3&333 per year. C) decrease by 413&333 per year. D) increase by 4#3&333 per year. 1/. <anor Company plans to discontinue a department that has a contribution margin of 4!$&333 and 4$1&333 in fixed costs. *f the fixed costs& 4!1&333 cannot be avoided. "he effect of this discontinuance on <anor s overall net operating income would be a=an): A) decrease of 4#&333. B) increase of 4#&333. C) decrease of 4!$&333. D) increase of 4!$&333. 11. <anor Company plans to discontinue a department that has a contribution margin of 4!'&333 and 4'3&333 in fixed costs. *f the fixed costs& 4!1&333 cannot be eliminated. "he effect on the profit of <anor Company of discontinuing this department would be: A) a decrease of 4$&333. B) an increase of 4$&333. C) a decrease of 4!'&333. D) an increase of 4!'&333. 15. Creen Company produces 1&333 parts per year& which are used in the assembly of one of its products. "he unit product cost of these parts is: ?ariable manufacturing cost Bixed manufacturing cost 7nit product cost aaa 41! 5 4!1

"he part can be purchased from an outside supplier at 4!3 per unit. (f the part is purchased from the outside supplier& two thirds of the fixed manufacturing costs can be eliminated. "he annual impact on the company s net operating income as a result of buying the part from the outside supplier would be: A) 41&333 increase. B) 41&333 decrease. C) 4'&333 increase. D) 4!&333 decrease. !3. >it;in Company produces a part used in the manufacture of one of its products. "he unit product cost of the part is 4##& computed as follows: Direct materials 41! Direct labor 1 ?ariable manufacturing overhead Bixed manufacturing overhead . 13 7nit product cost 4## aaa

An outside supplier has offered to provide the annual re%uirement of 13&333 of the parts for only 4!/ each. "he company estimates that #32 of the fixed manufacturing overhead costs above will continue if the parts are purchased from the outside supplier. Assume that direct labor is an avoidable cost in this decision. Based on these data& the per unit dollar advantage or disadvantage of purchasing the parts from the outside supplier would be: A) 4# advantage. B) 41 advantage. C) 41 disadvantage. D) 4$ disadvantage. !1. Cardinal Company needs !3&333 units of a certain part to use in one of its products. "he following information is available: Cost to Cardinal to ma;e the part: Direct materials 4 $ Direct labor 1. ?ariable manufacturing overhead . Bixed manufacturing overhead . 13 4#1 aaa Cost to buy the part from the *riole Company 4#.

*riole Company has offered to sell this part to Cardinal company for 4#. each. (f Cardinal buys the part from *riole instead of ma;ing it& Cardinal would not have any use for the released capacity. (n addition& .32 of the fixed manufacturing overhead costs will continue regardless of what decision is made. Assume that direct labor is an avoidable cost in this decision. (n deciding whether to ma;e or buy the part& the total relevant costs to ma;e the part are: A) 4'.3&333. B) 4.$3&333. C) 4/!3&333. D) 4/.3&333. !!. >roducts A& B& and C are produced from a single raw material input. "he raw material costs 453&333& from which '&333 units of A& 13&333 units of B& and 1'&333 units of C can be produced each period. >roduct A can be sold at the split:off point for 4! per unit& or it can be processed further at a cost of 41!&'33 and then sold for 4' per unit. >roduct A should be: A) sold at the split:off point& since further processing would result in a loss of 43.'3 per unit. B) processed further& since this will increase profits by 4!&'33 each period. C) sold at the split:off point& since further processing will result in a loss of 4!&'33 each period. D) processed further& since this will increase profits by 41!&'33 each period. 7se the following to answer %uestion !#: "he "olar Company has $33 obsolete des; calculators that are carried in inventory at a total cost of 4!.&133. (f these calculators are upgraded at a

total cost of 413&333& they can be sold for a total of 4#3&333. As an alternative& the calculators can be sold in their present condition for 411&!33. !#. A) B) C) D) "he sun; cost in this situation is: 413&333. 4!.&133. 411&!33. 43

7se the following to answer %uestion !$: Aholt Company ma;es $3&333 units per year of a part it uses in the products it manufactures. "he unit product cost of this part is computed as follows: Direct materials 411.#3 Direct labor !!./3 ?ariable manufacturing overhead 1.!3 Bixed manufacturing overhead !$./3 7nit product cost 4'5.53 aaaaa An outside supplier has offered to sell the company all of these parts it needs for 4$..!3 a unit. (f the company accepts this offer& the facilities now being used to ma;e the part could be used to ma;e more units of a product that is in high demand. "he additional contribution margin on this other product would be 4!.$&333 per year. (f the part were purchased from the outside supplier& all of the direct labor cost of the part would be avoided. @owever& 4!1.53 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. "his fixed manufacturing overhead cost would be applied to the company s remaining products. !$. decision of A) B) C) D) @ow much of the unit product cost of 4'5.53 is relevant in the whether to ma;e or buy the part+ 4#1.33 4'5.53 4#'.!3 4!!./3

7se the following to answer %uestion !': "he <adison Company produces three products with the following costs and selling prices: A B C ,elling price per unit 41. ?ariable cost per unit / Contribution margin per unit Direct labor hours per unit <achine hours per unit $.' 4!1 11 4 5 1 ! 4!1 1# 413 1.' !.'

4 1 !

!'. (f direct labor:hours is the company s production constraint& then the three products should be produced in the order: A) A& B& C. B) B& C& A. C) C& A. B. D) A& C& B. 7se the following to answer %uestions !.:!/: Austin 0ool of yarn can >roducts to and revenue >roducts purchases raw wool and processes it into yarn. "he spindles then be sold directly to stores or they can be used by Austin 0ool ma;e afghans. Dach afghan re%uires one spindle of yarn. Current cost data for the spindles of yarn and for the afghans are as follows:

Data for one spindle of yarn: ,elling price 41! ?ariable production cost 1 Bixed production cost =based on $&333 spindles of yarn produced) ! Data for one afghan: ,elling price 4#! >roduction cost per spindle of yarn 13 ?ariable production cost to process the yarn into an afghan 5 Avoidable fixed production cost to process the yarn into an afghan =based on $&333 afghans produced) ' Dach month $&333 spindles of yarn are produced that can either be sold outright or processed into afghans. !.. the monthly is: A) B) C) D) (f Austin chooses to produce $&333 afghans each month& the change in net operating income as compared to selling $&333 spindles of yarn 4!$&333 4!$&333 41.&333 41.&333 decrease. increase. decrease. increase.

!/. 0hat is the lowest price Austin should be willing to accept for one afghan as long as it can sell spindles of yarn to the outside mar;et for 41! each+ A) 4#! B) 4#3 C) 4!1 D) 4!. !1. =(gnore income taxes in this problem.) @ow is depreciation handled by the following capital budgeting techni%ues+ (nternal )ate of )eturn ,imple )ate of )eturn >aybac;

A) B) C) D) !5. A) B) C) D)

Dxcluded (ncluded Dxcluded (ncluded "he how the the the

(ncluded Dxcluded Dxcluded (ncluded

Dxcluded (ncluded (ncluded Dxcluded

paybac; method measures: %uic;ly investment dollars may be recovered. cash flow from an investment. economic life of an investment. profitability of an investment.

#3. "he evaluation of an investment having uneven cash flows using the paybac; method: A) cannot be done. B) can be done only by matching cash inflows and investment outflows on a year:by:year basis. C) will product essentially the same results as those obtained through the use of discounted cash flow techni%ues. D) re%uires the use of a sophisticated calculator or computer software. #1. (f the net present value of a pro6ect is Eero based on a discount rate of sixteen percent& then the time:ad6usted rate of return: A) is e%ual to sixteen percent. B) is less than sixteen percent. C) is greater than sixteen percent. D) cannot be determined from the information given. #!. =(gnore income taxes in this problem.) A company with 4133&333 in operating assets is considering the purchase of a machine that costs 4/'&333 and which is expected to reduce operating costs by 4!3&333 each year. "he paybac; period for this machine in years is closest to: A) 3.!/ years. B) 13./ years. C) #./' years. D) $3 years. ##. =(gnore income taxes in this problem.) Denny Corporation is considering replacing a technologically obsolete machine with a new state:of: the:art numerically controlled machine. "he new machine would cost 4$'3&333 and would have a ten:year useful life. 7nfortunately& the new machine would have no salvage value. "he new machine would cost 4!3&333 per year to operate and maintain& but would save 4133&333 per year in labor and other costs. "he old machine can be sold now for scrap for 4'3&333. "he simple rate of return on the new machine is closest to: A) 1./'2. B) !3.332. C) /./12. D) !!.!!2. #$. >er;ins Company is considering several investment proposals& as shown below:

(nvestment >roposal A B C D (nvestment re%uired 413&333 4133&333 4.3&333 4/'&333 >resent value of future net cash flows 5.&333 1'3&333 1$&333 1!3&333 index: A) B) C) D) )an; the proposals in terms of preference using the profitability D& B& B& A& B& D& D& C& C& C& A& B& A. A. C. D.

#'. =(gnore income taxes in this problem.) "he following data pertain to an investment proposal: Cost of the investment Annual cost savings Dstimated salvage value Fife of the pro6ect Discount rate 1.2 A) B) C) D) 4!3&333 4 '&333 4 1&333 1 years

"he net present value of the proposed investment is: 41&/!3. 4.&3.$. 4!&1'$. 4!&3!'.

#.. =(gnore income taxes in this problem.) ,am 0eller is thin;ing of investing 4/3&333 to start a boo;store. ,am plans to withdraw 41'&333 from the business at the end of each year for the next five years. At the end of the fifth year& ,am plans to sell the business for 4113&333 cash. At a 1!2 discount rate& what is the net present value of the investment+ A) 4'$&3/'. B) 4.!&#/3. C) 4$.&$$'. D) 4/3&333. 7se the following to answer %uestion #/: =(gnore income taxes in this problem.) "he Binney Company is reviewing the possibility of remodeling one of its showrooms and buying some new e%uipment to improve sales operations. "he remodeling would cost 41!3&333 now and the useful life of the pro6ect is 13 years. Additional wor;ing capital needed immediately for this pro6ect would be 4#3&333A the wor;ing capital would be released for use elsewhere at the end of the 13:year period. "he e%uipment and other materials used in the pro6ect would have a salvage value of 413&333 in 13 years. Binney s discount rate is 1.2. #/. A) "he immediate cash outflow re%uired for this pro6ect would be: 4=1!3&333).

B) C) D)

4=1'3&333). 4=53&333). 4=1#3&333).

7se the following to answer %uestions #1:$3: =(gnore income taxes in this problem.) "he Bec;er Company is interested in buying a piece of e%uipment that it needs. "he following data have been assembled concerning this e%uipment: Cost of re%uired e%uipment 4!'3&333 0or;ing capital re%uired 4133&333 Annual operating cash inflows 4 13&333 Cash repair at end of $ years 4 $3&333 ,alvage value at end of . years 4 53&333 "his e%uipment is expected to have a useful life of . years. At the end of the sixth year the wor;ing capital would be released for use elsewhere. "he company s discount rate is 132. #1. A) B) C) D) "he present value of all future operating cash inflows is closest 4$13&333. 4$'!&#33. 4#$1&$33. 4!/1&/33.

to:

#5. "he present value of the net cash flows =all cash inflows less all cash outflows) occurring during year $ is: A) 4$3&333. B) 4!/&#!3. C) 4'$&.$3. D) 4$!&/53. $3. "he present value of the net cash flows =all cash inflows less all cash outflows) occurring during year . is closest to: A) 4!/3&333. B) 415'&533. C) 413/&!33. D) 41'!&#33.

Answer 9ey :: spoofin 1. !. #. $. '. .. /. 1. 5. 13. 11. 1!. 1#. 1$. 1'. 1.. 1/. 11. 15. !3. !1. !!. !#. !$. !'. !.. !/. !1. B *rigin: D *rigin: C *rigin: C *rigin: A *rigin: D *rigin: B *rigin: B *rigin: C *rigin: A *rigin: A *rigin: C *rigin: B *rigin: A *rigin: D *rigin: C *rigin: B *rigin: B *rigin: D *rigin: A *rigin: B *rigin: B *rigin: B *rigin: A *rigin: A *rigin: B *rigin: D *rigin: A Chapter 1!& ,egment )eporting& .......1. Chapter 1!& ,egment )eporting& .......11 Chapter 1!& ,egment )eporting& .......#1 Chapter 1!& ,egment )eporting& .......1/ Chapter 1!& ,egment )eporting& .......!3 Chapter 1!& ,egment )eporting& .......!. Chapter 1!& ,egment )eporting& .......!1 Chapter 1!& ,egment )eporting& .......#. Chapter 1!& ,egment )eporting& .......$1 Chapter 1!& ,egment )eporting& ........3 Chapter 1!& ,egment )eporting& ........# Chapter 1!& ,egment )eporting& ........$ Chapter 1!& ,egment )eporting& ......... Chapter 1!& ,egment )eporting& .......1' Chapter 1#& )elevant Costs for .......1/ Chapter 1#& )elevant Costs for .......!5 Chapter 1#& )elevant Costs for .......#1 Chapter 1#& )elevant Costs for .......#$ Chapter 1#& )elevant Costs for .......#' Chapter 1#& )elevant Costs for .......#. Chapter 1#& )elevant Costs for .......#/ Chapter 1#& )elevant Costs for .......$# Chapter 1#& )elevant Costs for .......$1 Chapter 1#& )elevant Costs for ......./# Chapter 1#& )elevant Costs for .......1$ Chapter 1#& )elevant Costs for .......1. Chapter 1#& )elevant Costs for .......1/

!5. #3. #1. #!. ##. #$. #'. #.. #/. #1. #5. $3.

*rigin: A *rigin: B *rigin: A *rigin: C *rigin: A *rigin: A *rigin: D *rigin: C *rigin: B *rigin: C *rigin: B *rigin: D *rigin:

Chapter 1$& Capital Budgeting Decisions....!# Chapter 1$& Capital Budgeting Decisions....!/ Chapter 1$& Capital Budgeting Decisions....#3 Chapter 1$& Capital Budgeting Decisions....!. Chapter 1$& Capital Budgeting Decisions.....$ Chapter 1$& Capital Budgeting Decisions...../ Chapter 1$& Capital Budgeting Decisions.....5 Chapter 1$& Capital Budgeting Decisions....'# Chapter 1$& Capital Budgeting Decisions....'' Chapter 1$& Capital Budgeting Decisions....1' Chapter 1$& Capital Budgeting Decisions....15 Chapter 1$& Capital Budgeting Decisions....53 Chapter 1$& Capital Budgeting Decisions....51