ACCT434 Advanced Cost Management: Week 6 Customer Profitability Capital Budgeting (Version 4)

Reminder: There are several versions of this week’s questions, please make sure you have reviewed and compared our questions with your questions.

ACCT434 Advanced Cost Management
Week 6 Customer Profitability Capital Budgeting (Version 4)

1.(TCO 9) To guide cost allocation decisions, the benefits-received criterion (Points : 3)
may use an allocation base of division revenues to allocate advertising costs.
is the primarily used criterion in activity-based costing.
results in subsidizing products that are not profitable.
generally uses the cost driver as the cost allocation base.

2. (TCO 9) Which cost-allocation criterion is superior when making an economic decision? (Points : 3)
Fairness-or-equity criterion
Ability-to-bear criterion
Cause-and-effect criterion
All of the above

3. (TCO 9) Some companies only allocate corporate costs to divisions that are (Points : 3)
direct costs.
planned and under the control of division managers.
output unit-level costs.
perceived as causally related to division activities.

4. (TCO 9) Corporate administrative costs allocated to a division cost pool are MOST likely to be (Points : 3)
batch-level costs.
product-sustaining costs.
output unit-level costs.
facility-sustaining costs.

5. (TCO 9) The Hassan Corporation has an electric mixer division and an electric lamp division. Of a $20,000,000 bond issuance, the electric mixer division used $14,000,000 and the electric lamp division used $6,000,000 for expansion. Interest costs on the bond totaled $1,500,000 for the year.

Which corporate costs should be allocated to divisions? (Points : 3)
Variable costs
Fixed costs
Neither fixed nor variable costs
Both fixed and variable costs

6. (TCO 10) The capital budgeting method which calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present using the required rate of return is the (Points : 3)
accrual accounting rate-of-return method.
net-present-value method.
payback method.
sensitivity method.
7. (TCO 10) Assume your goal in life is to retire with $1 million. How much would you need to save at the end of each year if investment rates average 9% and you have a 15-year work life? (Points : 3)

8. (TCO 10) The definition of an annuity is (Points : 3)
similar to the definition of a life insurance policy.
a series of equal cash flows at intervals.
an investment product whose funds are invested in the stock market.
Both 1 and 2 are correct.

9. (TCO 10) In situations where the required rate of return is not constant for each year of the project, it is advantageous to use (Points : 3)
sensitivity analysis.
the net-present-value method.
the adjusted rate-of-return method.
the internal rate-of-return method.

10. (TCO 10) The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of $950,000. The investment is expected to generate $350,000 in annual cash flows for a period of four years. The required rate of return is 14%. The old machine can be sold for $50,000. The machine is expected to have zero value at the end of the four-year period.
What is the net present value of the investment? Would the company want to purchase the new machine? Income taxes are not considered. (Points : 3)
$119,550; Yes
$326,750; No
$1,019,550; Yes
$69,550; No
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