2024 – 0 Managers determine product prices by adding to a cost amount a
Management Accounting 7 – 2024
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0… Managers determine product prices by adding to a cost amount a plus, called a …………………………………………………………………………………………. .
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1… A method of decision making that focuses on the effect of alternative courses of action on the relevant revenues and costs is ………………………. |
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2… The relevant financial factors to be considered in a lease or sell decision are differential costs and……………………………………………………………………
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3… Costs that have been incurred in the past that are not relevant to the decision are called…………………………………………………………………………….
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4… In a decision to discontinue a product or segment, the relevant costs that will be eliminated are ………………………………………………………………………. .
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5… Make or buy options often arise when a manufacturer has excess ……….. |
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Replace usable fixed assets
6… Decisions to replace usable fixed assets should be based on relevant costs. The relevant costs for a decision of this type are the replacement costs and the …………………………………………………………………………………. .
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Prohibits price discrimination
7… The law that prohibits price discrimination within the United States, unless differences in prices can be justified by different costs of serving different customers, is the………………………………………………………………………………
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Net cash outlay
8… A net cash outlay of $600,000 for a new piece of equipment could alternatively be invested to earn 8%. The $48,000 forgone by not investing the funds is called………………………………………………………………. .
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9-11… The three cost concepts used in applying the cost-plus approach to setting normal product prices are: |
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9… ………………………………………………………………………………………………………
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10… ………………………………………………………………………………………………………
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11… ………………………………………………………………………………………………………
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____11. ____ |
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12… A cost concept, pioneered by the Japanese, that assumes that the selling price is set by the marketplace is the …………………………………………………. |
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13… The term used to describe a situation when the demand for a company’s product exceeds the ability of the company to produce it is…………………… |
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14… The costing method that focuses on identifying and tracing activities to specific products is……………………………………………………………………………
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15… The amount of increase or decrease in revenue expected from a course of action as compared with an alternative is known as ………………………… |
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NOTE: Each blank is worth one point.
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PROBLEM 1—PROBLEMS
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INSTRUCTIONS: Solve the following problems and record the answers in the Answers column.
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0… The opportunity cost of investing $100,000 (in fixed assets) that is currently invested in U.S. Treasury Bills earning 6.25% is ……………………………………………………………………….
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1… Owen Co. is contemplating replacing an old piece of equipment, which cost $640,000 and has accumulated depreciation to date of $600,000, with a new piece of equipment costing $800,000.
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2–3… Finnerty Co. is considering discontinuing Product R from its multiple product line. For Product R, estimated sales are $745,000, variable costs are $500,000, and fixed costs are $95,000. |
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2… The anticipated differential revenue associated with the discontinuance of Product R is ………………………………………. |
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3… The anticipated differential cost associated with the discontinuance of Product R is ………………………………………. |
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4–5… Roberts Co. can further process Product J to produce Product K. Product J is currently selling for $95 per unit and costs $80 per unit to produce. Product K would sell for $195 per unit and would require an additional $125 to produce. |
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4… The differential cost per unit of processing Product J into Product K is…………………………………………………………………. .
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5… The differential revenue per unit of processing Product J into Product K is……………………………………………………………. |
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6–8… A company has a normal plant capacity of 100,000 units per month. Because of an extra large supply of inventory on hand, it expects to produce only 80,000 units in May. Monthly fixed costs are $150,000 ($1.50 per unit at normal plant capacity) and variable costs are $4. 00 per unit. The present selling price is $8 per unit. The company has an opportunity to sell 15,000 additional units at $4.50 per unit to a wholesaler who plans to market the product under its own brand name. The additional business is not expected to affect the regular selling price or quantity of sales of the company. |
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6… The differential revenue from acceptance of the offer is …… |
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7… The differential cost from acceptance of the offer is ………… |
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8… The gain or loss from acceptance of the offer is ………………. |
gain $ |
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NOTE: Each blank is worth one point.
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FILL-IN-THE-BLANK—PRINCIPLES AND TERMINOLOGY
INSTRUCTIONS: Answer the following questions or complete the following statements by writing the appropriate words in the Answers column.
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0… The process by which management allocates available investment funds among competing capital investment proposals is called ……………………… |
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1–2… The two methods of evaluating capital investment proposals that use present values are: |
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1… ………………………………………………………………………………………………………
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2… ………………………………………………………………………………………………………
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3… An index that is useful for ranking capital investment proposals and is determined by dividing the present value of net cash flow by the amount to be invested is called………………………………………………………………………
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4… The method of evaluating capital investment proposals that divides estimated average annual income by average investment is………………… |
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5… A series of equal cash flows at fixed intervals is termed a(n) ……………….. |
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6… The expected period of time that will elapse between the date of a capital expenditure and a complete recovery in cash or equivalent is called the… |
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7… The method of evaluating capital investment proposals that reduces expected future net cash flows to present values and compares this total present value to the amount of the investment is the…………………………….
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8… The process by which management plans, evaluates, and controls investments in fixed assets is called ………………………………………………….. |
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9… Periods of time characterized by increasing price levels are known as periods of ………………………………………………………………………………………. .
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10… The budget prepared to facilitate the planning of operations and the financing of property and equipment acquisitions is the ……………………….. |
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11… The concept that recognizes an amount of cash invested today will earn income and therefore has value over time is called the ……………………….. |
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12… In using the internal rate of return method, the amount determined by dividing the amount to be invested by the annual net cash flow is called the…………………………………………………………………………………………………. .
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13… The concept that recognizes that cash to be received at some date in the future is not the equivalent of the same amount of cash received at an earlier date is called the …………………………………………………………………….
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14… If the present value of the cash flows using a rate of return of 18% is less than the amount to be invested, the internal rate of return of the proposed capital investment must be (greater or less) than 18%? ………………………. .
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15… In analyzing a capital investment in automated equipment, quantitative considerations are often less important than qualitative considerations (true or false) …………………………………………………………………………………. .
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NOTE: Each blank is worth one point.
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PROBLEM 2—PROBLEMS
INSTRUCTIONS: Solve the following problems and record the answers in the Answers column.
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Scoring |
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0…. What is the present value of $5,000 to be received one year from today, assuming an earnings rate of 8%? (Round to the nearest dollar.) ………………………………………………………………….
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1…. A 7-year, $660,000 capital investment proposal is expected to have the Year 1 ………………………………………………………. $270,000 Year 2 ………………………………………………………. 200,000 Year 3 ………………………………………………………. 130,000 Year 4 ………………………………………………………. 60,000 Year 5 ………………………………………………………. 15,000 Year 6 ………………………………………………………. 6,000 Year 7 ………………………………………………………. 3,000 |
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2…. If the total present value of the net cash flows expected from a proposed capital investment is $400,000 and the amount to be invested is $500,000, the present value index is …………………… |
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3…. A proposed $173,600 capital investment is expected to generate Year 10% 15% 20% 1 0.909 0. 870 0. 2 1.736 1. 626 1. 3 2.487 2. 283 2. > > > 
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4…. A 10-year, $650,000 capital investment proposal has a net present value over the amount to be invested of $27,000. Determine the present value index for the proposal ……………… |
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5–7…. Takemura Inc. is evaluating a proposed capital investment of $400,000, which has a 4-year life and total expected income of $80,000. |
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5…. What is the average investment, assuming that the straight-line method of depreciation is used and no residual value is expected? ………………………………………………………………………. .
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6…. What is the average annual income? ………………………………….. |
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7…. What is the average rate of return? ……………………………………. |
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8…. A firm is considering the acquisition of a machine costing $200,000, with an estimated life of 5 years and no residual value. The proposal is expected to provide a yearly net income of $15,000 and yearly net cash flow of $45,000. The average rate of return on investment, giving effect to depreciation on investment, is …………………………………………………………………. .
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9…. Bishop Inc. is evaluating a proposed capital investment of $520,000 that has a 10-year life and will yield equal annual cash flows of $80,000. The cash payback period is ……………… |
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10…. A company is evaluating a project requiring a capital expenditure of Year Net Income Net Cash Flow 1 $15,000 $45,000 2 10,000 40,000 3 5,000 35,000 … The company’s minimum desired rate of return for net present value |
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