ACCT434 Advanced Cost Management: Week 6 Customer Profitability Capital Budgeting (Version 3)

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 3)

1. (TCO 9) To guide cost allocation decisions, the cause-and-effect criterion (Points : 3)
may allocate corporate salaries to divisions based on profits.
is used less frequently than the other criteria.
is the primary criterion used in activity-based costing.
is a difficult criterion on which to obtain agreement.

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) The MOST likely reason for allocating all corporate costs to divisions include that (Points : 3)
divisions receive benefits from all corporate costs.
division managers make decisions that ultimately control corporate costs.
the hierarchy of costs promotes cost management.
it is best to use multiple cost objects.

4. (TCO 9) To allocate corporate costs to divisions, the allocation base used should (Points : 3)
allocate the full costs.
Combine administrative and human resource management costs.
have the best cause-and-effect relationship with the costs.
be an output unit-level base.

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 stage of the capital budgeting process in which a firm obtains funding for the project is the (Points : 3)
obtain-information stage.
implement the decision, evaluate performance, and learn stage.
make-decisions-by-choosing-among-alternatives stage.
make-predictions stage.

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 interest rates average 6% and you have a 20-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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