Question 1. Return on investment (ROI) can be increased by:
a. increasing sales
b. decreasing operating assets
c. decreasing operating income
d. decreasing asset turnover
Question 2. Randall Company makes and distributes outdoor play equipment. Last year sales were $2,400,000, operating income was $600,000, and the assets used were $3,000,000. The return on investment (ROI) is:
a. 20%
b. 80%
c. 25%
d. 125%
Question 3: When making screening decisions using the net present value method, a project is acceptable if
a. the NPV is greater than the hurdle rate.
b. the NPV is greater than the IRR.
c. the NPV is positive.
d. the NPV is negative.
Question 4. Minne Corp is considering the purchase of a new piece of equipment. When discounted at a hurdle rate of 8%, the project has a net present value of $24,580. When discounted at a hurdle rate of 10%, the project has a net present value of ($28,940). The internal rate of return of the project is
a. zero.
b. between zero and 8%.
c. between 8% and 10%.
d. greater than 10%.
Question 5. An analysis that reveals whether changing the underlying assumptions would affect the decision is a
a. net present value analysis.
b. internal rate of return analysis.
c. payback period analysis.
d. sensitivity analysis
Question 6. Jonas Inc. is considering whether to lease or purchase a piece of equipment. The total cost to lease the equipment will be $120,000 over its estimated life, while the total cost to buy the equipment will be $75,000 over its estimated life. At Jonas's required rate of return, the net present value of the cost of leasing the equipment is $73,700 and the net present value of the cost of buying the equipment is $68,000. Based on financial factors, Jonas should
a. lease the equipment, saving $45,000 over buying.
b. buy the equipment, saving $45,000 over leasing.
c. lease the equipment, saving $5,700 over buying.
d. buy the equipment, saving $5,700 over leasing.
Information for the next three questions
Community Manufacturing Inc., developed the following standard costs for direct material and direct labor for one of their major products, the 30-gallon heavy-duty plastic container.
Standard quantity Standard price
Direct materials 0.20 pounds $25 per pound
Direct labor 0.10 hours $15 per hour
During May, Community produced and sold 10,000 containers using 2,200 pounds of direct materials at an average cost per pound of $24 and 1,050 direct labor hours at an average wage of $14.75 per hour.
Question 7. May’s direct material price variance was:
a. $2,800 favorable
b. $2,200 favorable
c. $5,000 unfavorable
d. None of the above is correct.
Question 8. May’s direct material quantity variance was:
a. $2,800 unfavorable
b. $2,200 favorable
c. $5,000 unfavorable
d. None of the above is correct.
Question 9. May’s direct labor rate variance was:
a. $750.00 unfavorable
b. $262.50 favorable
c. $487.50 favorable
d. indeterminable using the above information
THE FOLLOWING INFORMATION APPLIES TO next three questions
The following information for the second quarter of 2006 pertains to Huffman Company:
Month Sales Purchases
April $45,000 $24,000
May $60,000 $30,000
June $75,000 $42,000
• Cash is collected from customers in the following manner:
Month of sale 30%
Month following the sale 70%
• 40% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.
• Labor costs are 20% of sales. Other operating costs are $22,500 per month (including $6,000 of depreciation). Both of these are paid in the month incurred.
• The cash balance on June 1 is $6,000. A minimum cash balance of $4,500 is required at the end of the month. Money can be borrowed in multiples of $1,500.
* No loans outstanding on June 1.
Question 10. How much cash will be collected from customers in June?
a. $64,500
b. $70,500
c. $75,000
d. None of the above is correct.
Question 11. How much cash will be paid to suppliers in June?
a. $34,800
b. $28,000
c. $44,000
d. None of the above is correct.
Question 12. How much cash will be disbursed for labor and operating costs in June?
a. $31,500
b. $35,000
c. $44,200
d. $48,200
Question 13. Jackel Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Jackel Company's ending finished goods inventory policy is 10% of the following month's sales. What is budgeted finished goods inventory for May?
a. 1,000
b. 1,300
c. 1,600
d. 2,100
Question 14. In which order are the following developed?
A = Production plan B = Materials purchasing plan
C = Demand forecast D = Sales plan
a. first to last: A, B, C, D
b. first to last: C, D, A, B
c. first to last: D, C, B, A
d. first to last: C, A, D, B