Acct Chapter 12/13

The Lantern Corporation has 1,000 obsolete lanterns that are carried in inventory at a manufacturing cost of $20,000. If the lanterns are re-machined for $5,000, they could be sold for $9,000. Alternatively, the lanterns could be sold for scrap for $1,000. Which alternative is more desirable, and what are the total relevant costs for that alternative?

Re-machine and $5000

Re-machine and $25000

Scrap and $20000

Scrap and $19000

What is the opportunity cost of making a component part in a factory with no excess capacity?

Variable manufacturing cost of the component.

Fixed manufacturing cost of the component.

Cost of the production given up in order to manufacture the component.

Net benefit foregone from the alternative use of the capacity required.

Manor Company plans to discontinue a department that has a contribution margin of $24,000 and $48,000 in fixed costs. Of the fixed costs, $21,000 cannot be avoided. What would be the effect of discontinuing the department on Manor's overall operating income?

An increase of $3,000.

A decrease of $3,000.

An increase of $24,000.

A decrease of $24,000.

Orders for Z first, X second, and Y third.

Orders for X first, Z second, and Y third.

Orders for Y first, X second, and Z third.

Orders for Z first and no orders for X or Y.

Which of the following is a weakness of the internal rate of return method for screening investment projects?

It does NOT consider the time value of money.

It implicitly assumes that the company is able to reinvest cash flows from the project at the company's discount rate.

It implicitly assumes that the company is able to reinvest cash flows from the project at the internal rate of return.

It does NOT take into account all of the cash flows from a project.

Why are the net present value and internal rate of return methods of capital budgeting superior to the payback method?

Because they are easier to implement.

Because they consider the time value of money.

Because they require less input.

Because they reflect the effects of depreciation and income taxes.

Which one of the following statements about the payback method of capital budgeting is correct?

The payback method does NOT consider the time value of money.

The payback method considers cash flows after the payback has been reached.

The payback method uses discounted cash flow techniques.

The payback method will lead to the same decision as other methods of capital budgeting.

Which of the following is NOT an effective way of dealing with a production constraint (i.e., bottleneck)?

Reduce the number of defective units produced at the bottleneck.

Pay overtime to workers assigned to the bottleneck.

Pay overtime to workers assigned to workstations located after the bottleneck in the production process.

Subcontract work that would otherwise require use of the bottleneck.

Products A, B, and C are produced from a single raw material input. The raw material costs are $90,000, from which 5,000 units of A, 10,000 units of B, and 15,000 units of C can be produced each period. Product A can be sold at the split-off point for $2 per unit, or it can be processed further at a cost of $12,500 and then sold for $5 per unit. What is the correct course of action regarding Product A?

It should be sold at the split-off point, since further processing would result in a loss of $0.50 per unit.

It should be processed further, since this will increase profits by $2,500 each period.

It should be sold at the split-off point, since further processing will result in a loss of $2,500 each period.

It should be processed further, since this will increase profits by $12,500 each period.

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Acct Chapter 12/13

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