# The forecasted sales pertain to Arrow Corporation

June 8, 2016

Question
• Question 2
2 out of 2 points

The forecasted sales pertain to Arrow Corporation:

Month Sales

September \$400,000

October 320,000

Finished Goods Inventory (August 31): 28,000

Arrow Corporation has a selling price of \$5 on all units and expects to maintain ending inventories equal to 25 percent of the next month’s sales.

How many units does Arrow expect to produce in September?

• Question 4

2 out of 2 points

Tempe Milling is evaluating a proposal to invest in a new piece of equipment costing \$90,000 with the following annual cash flows over the equipment’s 6-year useful life:

Cash revenues \$90,000

Cash expenses (52,000)

Depreciation expenses (straight-line) (15,000)

Income provided from equipment \$23,000

Cost of capital 14 percent

The accounting rate of return on initial investment is:

• Question 6

2 out of 2 points

Urbana Corporation is considering the purchase of a new machine costing \$152,000. The machine would generate net cash inflows of \$46,426 per year for 5 years. At the end of 5 years, the machine would have no salvage value. Urbana’s cost of capital is 12 percent. Urbana uses straight-line depreciation.

Using a spreadsheet or financial calculator, determine the internal rate of return for the investment.

The proposal’s internal rate of return (rounded to the nearest percent) is:

• Question 8

2 out of 2 points

Nicky’s Donut Shop is considering an investment of \$100,000. Data related to the investment and present value factors are as follows:

Year Cash Inflows Present Value of \$1.00

1 \$90,000 0.877

2 88,000 0.769

3 64,000 0.675

4 120,000 0.592

5 120,000 0.519

The net present value of the investment is:

• Question 10

2 out of 2 points

Leo Production Company has the following information:

Standard fixed factory overhead rates per direct labor-hour \$3.00

Standard variable factory overhead rates per direct labor-hour \$10.00

Actual number of units produced 12,000 units

Actual factory overhead costs (includes \$70,000 fixed) \$156,000

Actual direct labor hours 12,000 hours

Standard factory overhead rates are based on a normal monthly volume of 10,000 units (1 standard direct labor-hour per unit).

What is Leo’s variable overhead efficiency variance?

• Question 16

2 out of 2 points

A project under consideration has a net present value of \$10,000 for a required investment of \$60,000. There are no other investment options at this time. However, the assumed discount rate used to calculate the net present value is 20%.

On the basis of this information alone, this project should:

• Question 17

2 out of 2 points

The management of Mouser Manufacturing is analyzing variable overhead variances for the fiscal period just ended. The flexible budget called for \$352,000 in variable overhead but actual variable overhead was \$400,000. In computing the overhead variances, Mouser’s management discovered that it had used 80,000 pounds of direct material, rather than the budgeted amount of 88,000 pounds. (Pounds of direct material is the single overhead driver of variable overhead). The standard variable overhead rate per pound of direct material is \$4.00. What is Mouser’s variable overhead efficiency variance?

• Question 20

2 out of 2 points

Falcon Company had sales of \$3,000,000, net income of \$400,000, and an asset base of \$1,200,000. Its investment turnover is:

• Question 22

2 out of 2 points

Homer Glen Division has the capacity to make 3,000 units of an intermediate good that is sold both internally and on the open market for a price of \$63 each. To make the product, Homer Glen incurs \$14 of variable cost per unit and \$24 of fixed costs per unit. What is the minimum price Homer Glen would accept for an internal transfer of 1,000 units of the product if the division is operating at 100% capacity?

• Question 23

2 out of 2 points

Next Step Company is a two-division firm and has the following information available for this year:

Common fixed costs \$ 800,000

Direct fixed costs of Division A 200,000

Direct fixed costs of Division B 400,000

Sales revenue of Division A 1,200,000

Sales revenue of Division B 1,800,000

Variable costs of Division A 240,000

Variable costs of Division B 360,000

What is Division A’s contribution margin?

• Question 25

2 out of 2 points

Sammy Corporation is considering an investment in equipment for \$150,000 with a four-year life and no salvage value. Sammy uses the straight-line method of depreciation and is subject to a 34 percent tax rate.

Over the life of the project, the total tax shield created by depreciation is:

• Question 27

2 out of 2 points

Thomas, Inc. uses activity-based costing. The company produces two products, 001 and 002. Information relating to the two products is as follows:

001 002

Units produced 38,000 50,000

Machine-hours 15,000 17,000

Direct labor-hours 16,000 24,000

Materials handling (number of moves) 8,000 12,000

Setups 10,000 14,000

The following costs are reported:

Materials handling \$320,000

Setups 600,000

Setup costs assigned to 002 are:

• Question 28

2 out of 2 points

The Year 1 selling expense budget for Karin Corporation is as follows:

Budgeted sales \$2,500,000

Selling costs:

Delivery expenses \$25,000

Commission expenses 75,000

Office expenses 12,000

Miscellaneous expenses 30,000

Total \$ 162,000

Delivery and commission expenses vary proportionally with budgeted sales in dollars. Advertising and office expenses are fixed. Miscellaneous expenses include \$10,000 of fixed costs. The rest varies with budgeted sales in dollars. The Year 2 budgeted sales is \$3,400,000.

What will be the value for commission expenses in the Year 2 selling expense budget?

• Question 29

2 out of 2 points

USE THE FOLLOWING INFORMATION FOR QUESTIONS 47 – 50:

Seemore Company manufactures binoculars. The actual costs for 2013 and 2014 were as follows:

2013

2014

Direct materials:

Plastic case \$ 8.00 \$ 7.60

Lens set 34.00 34.40

Direct labor 64.00 (1.6 hours) 60.00 (1.5 hours)

Indirect manufacturing costs:

Variable 16.00 14.20

Fixed 4.00 (100,000 units) 3.80 (120,000 units)

Beginning in 2014, Seemore implemented a continuous improvement program that required a first-year cost reduction target of a 7 percent reduction of the 2013 base.

Seemore’s continuous improvement target for indirect variable manufacturing costs in 2014 was:

• Question 30

2 out of 2 points

Plainfield Company has two divisions: the Mixing Division and Bottling Division. The Mixing Division sells beverage mix to the Bottling Division. Standard costs for the Mixing Division are as follows:

Direct materials \$4.00 per gallon

Direct labor 1.60 per gallon

The Mixing Division uses the following predetermined overhead rate:

Total \$4.00 per gallon

What is the transfer price for the beverage mix per gallon based on standard absorption cost plus a markup of 30 percent?

• Question 32

2 out of 2 points

Cari Chair Company manufactures rocking chairs. The estimated number of rocking chair sales for each of the last three months of Year 1 is as follows:

Month Unit Sales

October 10,000

November 14,000

December 15,000

Finished goods inventory at the end of November was 4,000 units. Desired ending finished goods inventory is equal to 25 percent of the next month’s sales. Cari Chair expects to sell the chairs for \$100 each. January sales for Year 2 are projected at 16,000 chairs.

How many chairs should Cari produce in December?

• Question 35

2 out of 2 points

Read Publishing is considering the purchase of a used printing press costing \$84,200. The printing press would generate a net cash inflow of \$37,422 a year for 3 years. At the end of 3 years, the press would have no salvage value. The company’s cost of capital is 10 percent. The company uses straight-line depreciation. The present value factors of an annuity of \$1.00 for different rates of return are as follows:

Cost of Capital

Period 8% 10% 12% 14% 16%

2 1.78 1.74 1.69 1.65 1.61

3 2.58 2.49 2.40 2.32 2.25

4 3.31 3.17 3.04 2.91 2.80

The investment’s net present value is:

• Question 40

2 out of 2 points

Assume the following information for a product line:

Sales revenue \$2,200,000

Variable manufacturing costs 200,000

Fixed manufacturing costs 150,000

What is the product line’s segment income?

• Question 42

2 out of 2 points

Long Horn Medical Services is considering an investment of \$100,000. Assume the discount rate is 18%. Data related to the cash inflows are as follows:

Year Cash Inflows

1 \$50,000

2 46,000

3 60,000

4 80,000

5 50,000

Using a spreadsheet or financial calculator, determine the net present value for the investment.

The investment’s net present value is:

• Question 43

2 out of 2 points

Boulder Milling is evaluating a proposal to invest in a new piece of equipment costing \$100,000 with the following annual cash flows over the equipment’s 4-year useful life:

Cash revenues \$120,000

Cash expenses (64,000)

Depreciation expenses (straight-line) (20,000)

Income provided from equipment \$36,000

Cost of capital 12 percent

Using a spreadsheet or financial calculator, determine the net present value for the investment.

The investment’s net present value is:

• Question 45

2 out of 2 points

Texas Curtain Works is in the process of preparing its budget for next year. Cost of goods sold has been estimated at 70 percent of sales. Fabric purchases and payments are to be made during the month preceding the month of sale. Wages are estimated at 20 percent of sales and are paid during the month of sale. Other operating costs amounting to 25 percent of sales are to be paid in the month following the month of sales. Sales revenue is forecasted as follows:

Month Sales

February \$440,000

March \$450,000

April \$480,000

May \$500,000

June \$510,000

What is the amount of fabric purchases during the month of March?

• Question 46

2 out of 2 points

Cardinal Company allocates common Building Department costs to producing departments (A and B) based on space occupied, and it allocates common Personnel Department costs based on the number of employees. Space occupancy and employee data are as follows:

Building Personnel Dept. A Dept. B

Space occupied 200 ft. 1,000 ft. 24,000 ft. 7,000 ft.

Employees 3 5 90 25

If Cardinal uses the direct allocation method, the ratio representing the portion of Personnel costs allocated to Department A is:

• Question 48

2 out of 2 points

Long Horn Medical Services is considering an investment of \$100,000. Data related to the investment and present value factors are as follows:

Year Cash Inflows Present Value of \$1.00

1 \$50,000 0.85

2 46,000 0.72

3 60,000 0.61

4 80,000 0.52

5 50,000 0.44

The investment’s net present value is:

• Question 50

2 out of 2 points

Thomas Company has a sales budget for next month of \$1,000,000. Cost of goods sold is expected to be 45 percent of sales. All goods are paid for in the month following purchase. The beginning inventory of merchandise is \$20,000, and an ending inventory of \$24,000 is desired. Beginning accounts payable is \$152,000.

For Thomas Company, the ending accounts payable should be: