ACCT434 Advanced Cost Management: Week 6 Customer Profitability Capital Budgeting (Version 2)

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 2)

1. (TCO 9) To guide cost allocation decisions, the fairness or equity criterion is (Points: 3)
the criterion often cited in government contracts.
superior when the purpose of cost allocation is for economic decisions.
used more frequently than the other criteria.
the primary criterion used in activity-based costing.

2. (TCO 9) Which cost-allocation criterion is MOST likely to subsidize poor performers at the expense of the best performers? (Points : 3)
Cause-and-effect criterion
Ability-to-bear criterion
Fairness-or-equity criterion
Benefits-received criterion

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.

What amount of interest costs should be allocated to the electric mixer division? (Points : 3)
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 $1.5 million. How much would you need to save at the end of each year if interest rates average 5% and you have a 25-year work life? (Points : 3)

8. (TCO 10) If the net present value for a project is zero or positive, this means that the (Points : 3)
project should be accepted.
project should not be accepted.
expected rate of return is below the required rate of return.
Both 1 and 3 are correct.

9. (TCO 10) An important advantage of the net-present-value method of capital budgeting over the internal rate-of-return method is (Points : 3)
the net present value method is expressed as a percentage.
the net present values of individual projects can be added to determine the effects of accepting a combination of projects.
there is no advantage.
Both 1 and 2 are correct.

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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