finance exam

| October 3, 2018

Correct answers are marked in yellow

Question 15

Brittman Corporation makes three products that use the current constraint-a
particular type of machine. Data concerning those products appear below:
IP NI YD
Selling price per unit $183.57 $207.74 $348.15
Variable cost per unit $144.42 $155.04 $269.50
Minutes on the constraint 2.90 3.40 5.50

Assume that sufficient constraint time is available to satisfy demand for all
but the least profitable product. Up to how much should the company be willing
to pay to acquire more of the constrained resource?

A. $39.15 per unit

B. $15.50 per minute

C. $78.65 per unit

D. $13.50 per minute

Question 26.
Fonics Corporation is considering the following three competing investment
proposals:
Aye Bee Cee
Initial investment required $62,000 $74,000 $95,000
Net present value $10,000 $8,000 $12,000
Internal rate of return 15% 17% 18%

Using the project profitability index, how would the above investments be
ranked (highest to lowest)?

A. Cee, Bee, Aye

B. Aye, Cee, Bee

C. Aye, Bee, Cee

D. Bee, Cee, Aye

Larkins Company
Income Statement
For the Year Ended December 31, Year 2
(dollars in thousands)

Sales (all on account)
Cost of goods sold
Gross margin
Selling and administrative expense
Net operating income
Interest expense
Net income before taxes
Income taxes (30%)
Net income
$2,760
1,930
830
330
500
50
450
135
$315

Larkins Company’s return on total assets for Year 2 was closest to

A. 16.0%.

B. 15.3%.

C. 13.6%.

D. 17.0%.

Total net assets not given
return on assets cant be calculated .

Part N19 is used by Malouf Corporation to make one of its products. A total of
7,000 units of this part are produced and used every year. The company’s
Accounting Department reports the following costs of producing the part at this
level of activity:
Per Unit
Direct materials $2.20
Direct labor $8.50
Variable manufacturing overhead $1.30
Supervisor’s salary $5.80
Depreciation of special equipment $7.20
Allocated general overhead $4.60

An outside supplier has offered to make the part and sell it to the company for
$24.50 each. If this offer is accepted, the supervisor’s salary and all of the
variable costs, including the direct labor, can be avoided. The special
equipment used to make the part was purchased many years ago and has no salvage
value or other use. The allocated general overhead represents fixed costs of
the entire company, none of which would be avoided if the part were purchased
instead of produced internally. In addition, the space used to make part N19
could be used to make more of one of the company’s other products, generating
an additional segment margin of $25,000 per year for that product. What would
be the impact on the company’s overall net operating income of buying part N19
from the outside supplier?

A. Net operating income would decline by $60,700 per year.

B. Net operating income
would decline by $21,900 per year.

C. Net operating income would decline by $10,700 per year.

D. Net operating income would increase by $25,000 per year

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