Objective type questions on investment decisions

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Reference no: EM1312581

1. Ampulla Production Studios charges the Sound Effects Department's costs to two operating departments, Audio and Video. Charges are made on the basis of labor-hours. Information pertaining to the labor-hours for the year follows:

	Audio	Video
Budgeted labor -hours for the year	18,000	27,000
Actual labor-hours for the year	14,700	27,300
Annual long run average capacity in labor - hours	15,000	25,000

The following costs pertain to the Sounds Effects Department:

	Budgeted For Year	Actual For Year
Variable Costs	$315,000	$273,000
Fixed Costs	$756,000	$819,000

How much of the Sound Effects Department's variable cost should be charged to the Video Department at yearend for performance evaluation purposes?

$175,000
b $175,500
$177,450
$191,100

2. O'Neill, Incorporated's income statement for the most recent month is given below.

	Total	Store A	Store B
Sales	$300,000	$100,000	$200,000
Variable expenses	192,000	72,000	120,000
Contribution margin	108,000	28,000	80,000
Traceable fixed expenses	76,000	21,000	55,000
Segment margin	32,000	$7,000	$25,000
Common fixed expenses	27,000
Net Operating income	$5,000

For each of the following questions, refer back to the original dat a. The marketing department believes that a promotional campaign at Store A costing $5,000 will increase sales by $15,000. If its plan is adopted, overall company net operating income should:

decrease by $800
b decrease by $5,800
increase by $5,800
increase by $10,000

3. The Hum Division of the Ho Company reported the following data for last year:

Sales	$800,000
Operating expenses	$650,000
Interest expense	$50,000
Tax expense	$30,000
Stock holders' equity	$200,000
Average operating assets	$600,000
Minimum required rate of return	12%

The residual income for the Hum Division last year was:

$126,000
b $46,000
$78,000
$22,000

4. The following data pertain to Turk Company's operations last year:

Sales	$900,000
Net Operating income	$36,000
Contribution margin	$150,000
Average operating assets	$180,000
Stock holders' equity	$100,000
Plant, property, & equipment	$120,000

If the residual income for the year was $9,000, the minimum required rate of return must have been:

15%
b 4%
20%
36%

5. Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below:

Selling price to outside customers	$40
Variable cost per unit	$30
Total fixed costs	$10,000
Capacity in units	20,000

Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $38 per unit and would substitute the part made by Division A. Division B requires 5,000 units of the part each period. Division A is already selling all of the units it can produce to outside customers. If Division A sells to Division B rather than to outside customers, the variable cost per unit would be $1 lower. What is the lowest acceptable transfer price from the standpoint of the selling division?

$40
b $39
$38
$37

6. (Ignore income taxes in this problem.) Almendarez Corporation is considering the purchase of a machine that would cost $320,000 and would last for 7 years. At the end of 7 years, the machine would have a salvage value of $51,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $72,000. The company requires a minimum pretax return of 18% on all investment projects. The present value of the annual cost savings of $72,000 is closest to:

$22,608
b $874,298
$504,000
$274,464

7. (Ignore income taxes in this problem.) Crowl Corporation is investigating automating a process by purchasing a machine for $792,000 that would have a 9 year useful life and no salvage value. By automating the process, the company would save $132,000 per year in cash operating costs. The new machine would replace some old equipment that would be sold for scrap now, yielding $21,000. The annual depreciation on the new machine would be $88,000. The simple rate of return on the investment is closest to:

11.1%
b 16.7%
5.7%
5.6%

Reference no: EM1312581

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