Reference no: EM132572750
Questions -
Q1. Carmel Corporation is considering the purchase of a machine costing $38,000 with a 4-year useful life and no salvage value. Carmel uses straight-line depreciation and assumes that the annual cash inflow from the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is Carmel's average investment?
a. $11,875.
b. $9,500.
c. $19,000.
d. $23,750.
e. $38,000.
Q2. A company is considering the purchase of a new machine for $63,000. Management predicts that the machine can produce sales of $17,500 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $6,500 per year including depreciation of $5,500 per year. Income tax expense is $4,400 per year based on a tax rate of 40%. What is the payback period for the new machine?
a. 3.60 years.
b. 6.63 years.
c. 5.21 years.
d. 11.45 years.
e. 42.00 years.
Q3. The following relates to a proposed equipment purchase:
Cost $132,600
Salvage value $3,400
Estimated useful life 4 years
Annual net cash flows $45,500
Depreciation method Straight-line
The annual average investment amount used to calculate the accounting rate of return is:
a. $66,300
b. $64,600
c. $33,150
d. $68,000
e. $43,550
Q4. Rosie's Company has three products, P1, P2, and P3. The maximum Rosie's can sell is 72,000 units of P1, 45,000 units of P2, and 33,000 units of P3. Rosie's has limited production capacity of 30,000 hours. It can produce 12 units of P1, 6 units of P2, and 3 units of P3 per hour. Contribution margin per unit is $5 for the P1, $15 for the P2, and $25 for the P3. What is the most profitable sales mix for Rosie's Company?
a. 138,000 P1, 45,000 P2, 33,000 P3.
b. 29,700 P1, 45,000 P2, 138,000 P3.
c. 138,000 P1, 41,000 P2, 138,000 P3.
d. 31,500 P1, 41,000 P2, 33,000 P3.
e. 29,700 P1, 46,000 P2, 29,700 P3.
Q5. Epsilon Co. can produce a unit of product for the following costs:
Direct material $7.90
Direct labor 23.90
Overhead 39.50
Total product costs per unit $71.30
An outside supplier offers to provide Epsilon with all the units it needs at $63.45 per unit. If Epsilon buys from the supplier, the company will still incur 30% of its overhead. Epsilon should choose to:
a. Buy since the relevant cost to make it is $71.30.
b. Make since the relevant cost to make it is $59.45.
c. Buy since the relevant cost to make it is $43.65.
d. Make since the relevant cost to make it is $43.65.
e. Buy since the relevant cost to make it is $59.45.
Q6. JK Company can sell all of the plush and supreme products it can produce, but it has limited production capacity. It can produce 4 plush units per hour or 2 supreme units per hour, and it has 2,400 production hours available. Contribution margin per unit is $218 for the plush product and $304 for the supreme product. What is the most profitable sales mix for JK Company?
a. 0 plush units and 4,800 supreme units.
b. 4,800 plush units and 4,800 supreme units.
c. 9,600 plush units and 0 supreme units.
d. 9,600 plush units and 4,800 supreme units.
e. 4,800 plush units and 2,400 supreme units.