# Expert Answers

Assume the following amounts:

Total fixed costs $24,000

Selling price per unit $20

Variable costs per unit $15

If sales revenue per unit increases to $22 and 12,000 units are sold, what is the operating income?

A. $264,000

B. $60,000

C. $108,000

D. $84,000

Samson Incorporated provided the following information regarding its only product:

Sale price per unit $50.00

Direct materials used $160,000

Direct labor incurred $185,000

Variable manufacturing overhead $120,000

Variable selling and administrative expenses $70,000

Fixed manufacturing overhead $65,000

Fixed selling and administrative expenses $12,000

Units produced and sold 20,000

Assume no beginning inventory

Assuming there is excess capacity, what would be the effect on operating income of accepting a special order for 1,200 units at a sale price of $47 per product? The 1,200 units would not require any variable selling and administrative expenses. (NOTE: Assume regular sales are not affected by the special order.)

A. Increase by $84,300

B. Decrease by $28,500

C. Increase by $24,300

D. Increase by $28,500

Pluto Incorporated provided the following information regarding its single product:

Direct materials used $240,000

Direct labor incurred $420,000

Variable manufacturing overhead $160,000

Fixed manufacturing overhead $100,000

Variable selling and administrative expenses $60,000

Fixed selling and administrative expenses $20,000

The regular selling price for the product is $80. The annual quantity of units produced and sold is 40,000 units (the costs above relate to the 40,000 units production level). The company has excess capacity and regular sales will not be affected by this special order. There was no beginning inventory. What would be the effect on operating income of accepting a special order for 3,500 units at a sale price of $55 per product?

A. Increase by $115,500

B. Increase by $269,500

C. Decrease by $115,500

D. Decrease by $269,500

Selected financial data for The Portland Porcelain Works Coffee Mug Division is as follows.

Sales $2,300,000

Operating income $414,000

Total assets $718,750

Current liabilities $180,000

Target rate of return 10%

Weighted average cost of capital 8%

What is The Portland Porcelain Works Coffee Mug Division capital turnover?

A. 5.6

B. 12.8

C. 3.2

D. 1.7

For the most recent year, Robin Company reports operating income of $650,000. Robin's sales margin is 10%, and capital turnover is 2.0. What is Robin's return on investment (ROI)?

A. 5%

B. 1%

C. 100%

D. 20%

Feeney Furniture prepared the following sales budget.

Month Cash Sales Credit Sales

March $20,000 $10,000

April $36,000 $16,000

May $42,000 $40,000

June $54,000 $48,000

Credit collections are 15% two months following the sale, 50% in the month following the sale, and 30% in the month of sale. The remaining 5% is expected to be uncollectible. What are the total cash collections in June?

A. $36,800

B. $90,800

C. $86,000

D. $96,600

Beginning inventory is $120,000 and ending inventory is 60% of beginning inventory. Compute cost of goods sold for the period if purchases are $400,000.

A. $72,000

B. $448,000

C. $520,000

D. $592,000

A company produced 2,200 units of output during a production process that normally requires 2 hours of labor per unit of output. The standard labor rate is $16 per hour, but the company paid $15 per hour. Actual hours needed to complete the production process were 4,600. How much was the labor rate variance?

A. $4,400 favorable

B. $4,400 unfavorable

C. $4,600 favorable

D. $4,600 unfavorable

Smith & Cramer Computer Repair is considering an investment in computer and network equipment costing $254,000. This equipment would allow them to offer new programming services to clients. The equipment will be depreciated on the straight-line basis over an 8-year period with an estimated residual value of $60,000. Using the accounting rate of return model, what is the minimum average annual operating income that must be generated from this investment in order to achieve an 11% accounting rate of return?A. $6,600

B. $21,340

C. $31,750

D. $27,940

You win the lottery and must decide how to take the payout. Use an 8% discount rate. What is the present value of $15,000 a year received at the end of each of the next 6 years?

A. $9,450

B. $90,000

C. $74,893

D. $69,345

The Warren Company is considering investing in two alternative projects.

Project 1 Project 2

Investment $400,000 $250,000

Useful life (years) 5 6

Estimated annual net cash inflows for useful life $100,000 $45,000

Residual value $25,000 $15,000

Depreciation method Straight-line Straight-line

Required rate of return 12% 8%

What is the accounting rate of return for Project 2?

A. 33.67%

B. 3%

C. 18%

D. 2.33%

Assuming an interest rate of 6%, the present value of $22,000 to be received 9 years from now would be closest to:

A. $16,434.

B. $13,024.

C. $37,162.

D. $35,068.

Eagle Corporation is considering the purchase of a new machine. The machine costs $550,000 and will generate an annual net cash inflow of $100,000. What is the payback period?

A. 4 years and 6 months

B. 5 years

C. 5 years and 6 months

D. 6 years and 1 month

Total fixed costs $24,000

Selling price per unit $20

Variable costs per unit $15

If sales revenue per unit increases to $22 and 12,000 units are sold, what is the operating income?

A. $264,000

B. $60,000

C. $108,000

D. $84,000

Samson Incorporated provided the following information regarding its only product:

Sale price per unit $50.00

Direct materials used $160,000

Direct labor incurred $185,000

Variable manufacturing overhead $120,000

Variable selling and administrative expenses $70,000

Fixed manufacturing overhead $65,000

Fixed selling and administrative expenses $12,000

Units produced and sold 20,000

Assume no beginning inventory

Assuming there is excess capacity, what would be the effect on operating income of accepting a special order for 1,200 units at a sale price of $47 per product? The 1,200 units would not require any variable selling and administrative expenses. (NOTE: Assume regular sales are not affected by the special order.)

A. Increase by $84,300

B. Decrease by $28,500

C. Increase by $24,300

D. Increase by $28,500

Pluto Incorporated provided the following information regarding its single product:

Direct materials used $240,000

Direct labor incurred $420,000

Variable manufacturing overhead $160,000

Fixed manufacturing overhead $100,000

Variable selling and administrative expenses $60,000

Fixed selling and administrative expenses $20,000

The regular selling price for the product is $80. The annual quantity of units produced and sold is 40,000 units (the costs above relate to the 40,000 units production level). The company has excess capacity and regular sales will not be affected by this special order. There was no beginning inventory. What would be the effect on operating income of accepting a special order for 3,500 units at a sale price of $55 per product?

A. Increase by $115,500

B. Increase by $269,500

C. Decrease by $115,500

D. Decrease by $269,500

Selected financial data for The Portland Porcelain Works Coffee Mug Division is as follows.

Sales $2,300,000

Operating income $414,000

Total assets $718,750

Current liabilities $180,000

Target rate of return 10%

Weighted average cost of capital 8%

What is The Portland Porcelain Works Coffee Mug Division capital turnover?

A. 5.6

B. 12.8

C. 3.2

D. 1.7

For the most recent year, Robin Company reports operating income of $650,000. Robin's sales margin is 10%, and capital turnover is 2.0. What is Robin's return on investment (ROI)?

A. 5%

B. 1%

C. 100%

D. 20%

Feeney Furniture prepared the following sales budget.

Month Cash Sales Credit Sales

March $20,000 $10,000

April $36,000 $16,000

May $42,000 $40,000

June $54,000 $48,000

Credit collections are 15% two months following the sale, 50% in the month following the sale, and 30% in the month of sale. The remaining 5% is expected to be uncollectible. What are the total cash collections in June?

A. $36,800

B. $90,800

C. $86,000

D. $96,600

Beginning inventory is $120,000 and ending inventory is 60% of beginning inventory. Compute cost of goods sold for the period if purchases are $400,000.

A. $72,000

B. $448,000

C. $520,000

D. $592,000

A company produced 2,200 units of output during a production process that normally requires 2 hours of labor per unit of output. The standard labor rate is $16 per hour, but the company paid $15 per hour. Actual hours needed to complete the production process were 4,600. How much was the labor rate variance?

A. $4,400 favorable

B. $4,400 unfavorable

C. $4,600 favorable

D. $4,600 unfavorable

Smith & Cramer Computer Repair is considering an investment in computer and network equipment costing $254,000. This equipment would allow them to offer new programming services to clients. The equipment will be depreciated on the straight-line basis over an 8-year period with an estimated residual value of $60,000. Using the accounting rate of return model, what is the minimum average annual operating income that must be generated from this investment in order to achieve an 11% accounting rate of return?A. $6,600

B. $21,340

C. $31,750

D. $27,940

You win the lottery and must decide how to take the payout. Use an 8% discount rate. What is the present value of $15,000 a year received at the end of each of the next 6 years?

A. $9,450

B. $90,000

C. $74,893

D. $69,345

The Warren Company is considering investing in two alternative projects.

Project 1 Project 2

Investment $400,000 $250,000

Useful life (years) 5 6

Estimated annual net cash inflows for useful life $100,000 $45,000

Residual value $25,000 $15,000

Depreciation method Straight-line Straight-line

Required rate of return 12% 8%

What is the accounting rate of return for Project 2?

A. 33.67%

B. 3%

C. 18%

D. 2.33%

Assuming an interest rate of 6%, the present value of $22,000 to be received 9 years from now would be closest to:

A. $16,434.

B. $13,024.

C. $37,162.

D. $35,068.

Eagle Corporation is considering the purchase of a new machine. The machine costs $550,000 and will generate an annual net cash inflow of $100,000. What is the payback period?

A. 4 years and 6 months

B. 5 years

C. 5 years and 6 months

D. 6 years and 1 month

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