ACCT 342 Exam 2

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```					Review Assignment ACCT.

1. The cost components of an air conditioner include \$35 for the compressor, \$11.50 for the sheet molded compound
frame, and \$80 per unit for assembly. The factory machines and tools cost is \$55,000. The company expects to produce
1,500 air conditioners in the coming year. What cost function best represents these costs?
A) y = 1500 + 126.5X
B) y = 1,500 +55,000X
C) y = 55,000 + 1,500X
D) y = 55,000 +126.50X

Answer the following questions 2 & 3 using the information below:

At the Jordan Company, the cost of the personnel department has always been charged to production departments based
upon number of employees. Recently, opinions gathered from the department managers indicate that the number of new
hires might be a better predictor of personnel costs.
Total personnel department costs are \$160,000.

Department                        A      B        C
Number of employees 30            270    100
The number of new hires           8      12       5

2. If the number of employees is considered the cost driver, what amount of personnel costs will be allocated to
Department A?
A) \$12,000
B) \$5,333
C) \$51,200
D) \$20,000

3. If the number of new hires is considered the cost driver, what amount of personnel costs will be allocated to
Department A?
A) \$12,000
B) \$5,333
C) \$51,200
D) \$20,000

Answer the following questions 4 & 5 using the information below:

Miller's Good Value Appliance Store is a small company that has hired you to perform some management advisory
services. The following information pertains to 2008 operations.

Sales (5,000 microwave ovens) \$ 1,350,000
Cost of goods sold                      540,000
Store manager's salary per year 75,000
Operating costs per year        225,000
Advertising and promotion per year       25,000
Commissions (4% of sales)                67,500

4. What was the variable cost per unit sold for 2008?
A) \$13.50
B) \$108
C) \$121.50
D) \$186.50

5.What were total fixed costs for 2008?
A) \$932,500
B) \$325,000
C) \$250,000
D) \$225,000

6. A plot of data that results in one extreme observation MOST likely indicates that:
A) more than one cost pool should be used
B) an unusual event such as a plant shutdown occurred during that month
C) the cost-allocation base has been incorrectly identified
D) individual cost items do not have the same cost driver

Answer the following questions 7 & 8 using the information below:

The Gangwere Company has assembled the following data pertaining to certain costs that cannot be easily identified as
either fixed or variable. Gangwere Company has heard about a method of measuring cost functions called the high-low
method and has decided to use it in this situation.

Month     Cost     Hours
January \$40,0003,500
February       24,400    2,000
March          31,280    2,450
April          36,400    3,000
May            44,160    3,900
June           42,400    3,740

7. How is the cost function stated?
A) y = \$26,672 + \$1.84X
B) y = \$21,360 + \$1.52X
C) y = \$10,112 + \$8.64X
D) y = \$3,600 + \$10.40X

8. What is the estimated total cost at an operating level of 2,850 hours?
A) \$25,692
B) \$33,240
C) \$32,016
D) \$34,736

9. To complete the first setup on a new machine took an employee 200 minutes. Using an 80% incremental unit-time
learning model indicates that the second setup on the new machine is expected to take:
A) 160 minutes
B) 120 minutes
C) 80 minutes
D) 60 minutes

Chapter 14

10. The MOST likely reason for allocating all corporate costs to divisions include that:
A) division managers make decisions that ultimately control corporate costs
B) divisions receive benefits from all corporate costs
C) the hierarchy of costs promotes cost management
D) it is best to use multiple cost objects

11. The MOST likely reason for NOT allocating corporate costs to divisions include that:
A) these costs are not controllable by division managers
B) these costs are incurred to support division activities, not corporate activities
C) division resources are already used to attain corporate goals
D) divisions receive no benefits from corporate costs

12. Customers making large contributions to the profitability of the company should:
A) be treated the same as other customers because all customers are important
B) receive a higher level of attention from the company than less profitable customers
C) be charged higher prices for the same products than less profitable customers
D) not be offered the volume-based price discounts offered to less profitable customers

13. More insight into the static-budget variance can be gained by subdividing it into:
A) the sales-mix variance and the sales-quantity variance
B) the market-share variance and the market-size variance
C) the flexible-budget variance and the sales-volume variance
D) a cost hierarchy

Answer the following questions 14 – 17 using the information below:

The XTRA Appliance Manufacturing Corporation manufactures two vacuum cleaners, the Standard and the Super. The
following information was gathered about the two products:

Standard         Super
Budgeted sales in units                   3,200            800
Budgeted selling price                    \$300             \$850
Budgeted contribution margin per unit     \$210             \$550
Actual sales in units                     3,500            1,500
Actual selling price                      \$325             \$840

14. What is the budgeted sales-mix percentage for the Standard and the Super vacuum cleaners, respectively?
A) 0.80 and 0.20
B) 0.70 and 0.30
C) 0.20 and 0.80
D) 0.30 and 0.70

15. What is the total sales-volume variance in terms of the contribution margin?
A) \$108,000 unfavorable
B) \$108,000 favorable
C) \$278,000 favorable
D) \$448,000 favorable

16. What is the total sales-quantity variance in terms of the contribution margin?
A) \$110,000 favorable
B) \$170,000 favorable
C) \$278,000 favorable
D) \$448,000 favorable

17. What is the total sales-mix variance in terms of the contribution margin?
A) \$110,000 favorable
B) \$170,000 favorable
C) \$278,000 favorable
D) \$448,000 favorable

Chapter 15

18. To discourage unnecessary use of a support department, management might:
A) not allocate any support department costs to user departments
B) allocate support department costs based upon user department usage
C) allocate a fixed amount of support department costs to each department regardless of use
D) issue memos on useful services provided by the support department

19. Which of the following departments is NOT a support department for a boat manufacturing company?
A) Personnel
B) Molding and assembly
C) Data processing
D) Accounting

Answer the following questions 20 & 21 using the information below:

Betty's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs of
\$175,000 are allocated on the basis of budgeted warehouse-hours. Data Center Department costs of \$75,000 are allocated
based on the number of computer log-on hours. The costs of operating departments Music and Books are \$125,000 and
\$150,000, respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as follows:

Support Departments       Production Departments
Warehouse Department      Data Center Department Music Books
Budgeted costs \$175,000          \$75,000\$125,000        \$150,000
Budgeted warehouse-hours         NA      250    500     750
Number of computer hours         100     NA     400     500

20. Using the direct method, what amount of Warehouse Department costs will be allocated to Department Books?
A) \$70,000
B) \$105,000
C) \$75,000
D) \$87,500

21. Using the step-down method, what amount of Data Center Department cost will be allocated to the Warehouse
Department if the service department with the highest percentage of interdepartmental support service is allocated first?
(Round up)
A) \$25,000
B) \$75,000
C) \$7,500
D) \$0

22. Alfred, owner of Hi-Tech Fiberglass Fabricators, Inc., is interested in using the reciprocal allocation method. The
following data from operations were collected for analysis:
Plant Maintenance     PM (Support Dept)             \$350,000
Data Processing       DP (Support Dept)             \$ 75,000
Machining             M (Operating Dept)            \$225,000
Capping               C (Operating Dept)            \$125,000

Services furnished:
By Plant Maintenance (budgeted labor-hours):
to Data Processing     3,500
to Machining           5,000
to Capping             8,200
By Data Processing (budgeted computer time):
to Plant Maintenance 600
to Machining           3,500
to Capping             600

What is the complete reciprocated cost of the Data Processing Department?
A) \$90,000
B) \$118,750
C) \$122,971
D) \$152,432

Answer the following questions 23 & 24 using the information below:

The Sturgeon Bay Corporation currently uses a manufacturing facility costing \$400,000 per year; 80% of the facility's
capacity is currently being used. A start-up business has proposed a plan that would utilize the other 20% of the facility
and increase the overall costs of maintaining the space by 5%.

23. If the stand-alone method were used, what amount of cost would be allocated to the start-up business?
A) \$20,000
B) \$100,000
C) \$80,000
D) \$84,000

24. If the incremental method were used, what amount of cost would be allocated to the start-up business?
A) \$20,000
B) \$100,000
C) \$80,000
D) \$84,000

25. ________ is a cost that the contract parties agree to include in the costs to be reimbursed.
A) An allowable cost
B) An unallowable cost
C) An incremental cost
D) A stand-alone cost

Answer the following questions 26 – 28 using the information below:

Elmo's Educational Software Outlet sells two or more of the video games as a single package. Managers are keenly
interested in individual product-profitability figures. Information pertaining to three bundled products and the stand-alone
prices is as follows:

Stand-Alone Selling Price        Cost             Package          Packaged
Price
Math Fun        \$60      \$8.00           2. Reading Fun & Analysis         \$112
Analysis        \$90      \$10.00          3. All three   \$152

26. Using the stand-alone method with selling price as the weight for revenue allocation, what amount of revenue will be
allocated to Reading Fun in the first package (Reading Fun & Math Fun)?
A) \$40
B) \$44
C) \$38
D) \$50

27. Using the incremental method for revenue allocation, what amount of revenue will be allocated to Reading Fun in the
first package (Reading Fun & Math Fun)? Assume Reading Fun is the primary product, followed by Math Fun, and then
Analysis.
A) \$40
B) \$44
C) \$38
D) \$50

28. Using the stand-alone method with selling price as the weight for revenue allocation, what amount of revenue will be
allocated to Math Fun in the package that contains all three products?
A) \$48.25
B) \$60.00
C) \$45.60
D) \$50.67

Chapter 16

29. What type of cost is the result of an event that results in more than one product or service simultaneously?
A) byproduct cost
B)joint cost
C) main cost
D) separable cost

30. Products with a relatively low sales value are known as:
A) scrap
B) main products
C) joint products
D) byproducts

31. Which of the following is NOT a market-based approach to allocating costs?
A) sales value at splitoff
B) constant gross-margin percentage NRV
C) physical measures
D) net realizable value

Answer the following questions 32 & 33 using the information below:

Yakima Manufacturing purchases trees from Cascade Lumber and processes them up to the splitoff point where two
products (paper and pencil casings) are obtained. The products are then sold to an independent company that markets and
distributes them to retail outlets. The following information was collected for the month of November:

Trees processed:          50 trees (yield is 30,000 sheets of paper and 30,000 pencil casings and no scrap)

Production:      paper          30,000 sheets
pencil casings 30,000

Sales:           paper 29,000 at \$0.04 per page
pencil casings 30,000 at \$0.10 per casing

The cost of purchasing 50 trees and processing them up to the splitoff point to yield 30,000 sheets of paper and 30,000
pencil casings is \$1,500.

Yakima's accounting department reported no beginning inventories and an ending inventory of 1,000 sheets of paper.

32. What is the sales value at the splitoff point for paper?
A) \$120
B) \$1,160
C) \$1,200
D) \$1,950

33. If the sales value at splitoff method is used, what are the approximate joint costs assigned to ending inventory for
paper?
A) \$14.29
B) \$50.00
C) \$435.00
D) \$750.00

Answer the following questions 34 & 35 using the information below:

The Oxnard Corporation processes a liquid component up to the splitoff point where two products, Mr. DirtOut and Mr.
SinkClean, are produced and sold. There was no beginning inventory. The following material was collected for the month
of January:

Direct materials processed:       250,000 gallons (242,500 gallons of good product)

Production:   Mr. DirtOut    147,500 gallons
Mr. SinkClean 95,000 gallons

Sales: Mr. DirtOut    140,500 at \$110 per gallon
Mr. SinkClean 91,000 at \$ 100 per gallon

The cost of purchasing 250,000 gallons of direct materials and processing it up to the splitoff point to yield a total of
242,500 gallons of good product was \$380,000.

34. When using a physical-volume measure, what is the approximate amount of joint costs that will be allocated to Mr.
DirtOut and Mr. SinkClean?
A) \$231,116 and \$148,884
B) \$224,200 and \$155,800
C) \$227,202 and \$152,798
D) \$230,626 and \$149,374

35. When using the physical-volume method, what is Mr. DirtOut's approximate production cost per unit?
A) \$1.52
B) \$1.54
C) \$1.57
D) \$1.61

Answer the following questions 36 & 37 using the information below:

The Morton Company processes unprocessed goat milk up to the splitoff point where two products, condensed goat milk
and skim goat milk result. The following information was collected for the month of October:

Direct Materials processed:      65,000 gallons (shrinkage was 10%)

Production:     condensed goat milk      26,100 gallons
skim goat milk           32,400 gallons

Sales: condensed goat milk       \$3.50 per gallon
skim goat milk            \$2.50 per gallon

The costs of purchasing the 65,000 gallons of unprocessed goat milk and processing it up to the splitoff point to yield a
total of 58,500 gallons of salable product was \$72,240. There were no inventory balances of either product.

Condensed goat milk may be processed further to yield 19,500 gallons (the remainder is shrinkage) of a medicinal milk
product, Xyla, for an additional processing cost of \$3 per usable gallon. Xyla can be sold for \$18 per gallon.

Skim goat milk can be processed further to yield 28,100 gallons of skim goat ice cream, for an additional processing cost
per usable gallon of \$2.50. The product can be sold for \$9 per gallon.

There are no beginning and ending inventory balances.

36. Using estimated net realizable value, what amount of the \$72,240 of joint costs would be allocated Xyla and the skim
goat ice cream?
A) \$41,971 and \$30,269
B) \$44,471 and \$27,769
C) \$32,796 and \$39,444
D) \$36,120 and \$36,120

37. How much (if any) extra income would Morton earn if it produced and sold all of the Xyla from the condensed goat
milk? Allocate joint processing costs based upon relative sales value on the splitoff. (Extra income means income in
excess of what Morton would have earned from selling condensed goat milk.)
A) \$53,063
B) \$254,213
C) \$201,150
D) \$96,787

38. Industries that recognize income on each product when production is completed include:
A) mining
B) toy manufacturers
C) canning
D)Both A and C are correct.

Answer the following questions 39 & 40 using the information below:

Sparta Company processes 15,000 gallons of direct materials to produce two products, Product X and Product Y. Product
X sells for \$4 per gallon and Product Y, the main product, sells for \$50 per gallon. The following information is for
August:

Beginning        Ending
Production     Sales     Inventory        Inventory
Product X:              4,375 4,000      0                375
Product Y:              10,000 9,625     125              500

The manufacturing costs totaled \$15,000.

39. What is the byproduct's net revenue reduction if byproducts are recognized in the general ledger during production and
their revenues are a reduction of cost?
A) \$0
B) \$1,500
C) \$16,000
D) \$17,500

40. How much is the ending inventory reduction for the byproduct if byproducts are recognized in the general ledger at
the point of sale?
A) \$0
B) \$563
C) \$1,500
D) \$17,500

Chapter 17

41. Conversion costs:
A) include all the factors of production
B) include direct materials
C) in process costing are usually considered to be added evenly throughout the production process
D) Both B and C are correct.

Answer the following questions 42 & 43 using the information below:

The Swiss Clock Shop manufactures clocks on a highly automated assembly line. Its costing system uses two cost
categories, direct materials and conversion costs. Each product must pass through the Assembly Department and the
Testing Department. Direct materials are added at the beginning of the production process. Conversion costs are allocated
evenly throughout production. Swiss Clock Shop uses weighted-average costing.

Data for the Assembly Department for June 20X5 are:
Work in process, beginning inventory 250 units
Direct materials (100% complete)
Conversion costs (50% complete)

Units started during June                  800 units
Work in process, ending inventory:         150 units
Direct materials (100% complete)
Conversion costs (75% complete)

Costs for June 20X5:
Work in process, beginning inventory:
Direct materials                                  \$180,000
Conversion costs                                  \$270,000
Direct materials costs added during June          \$1,000,000
Conversion costs added during June                \$1,000,000

42. What is the direct materials cost per equivalent unit during June?
A) \$1,123.81
B) \$1,730.20
C) \$1,579,00
D) \$1,890.35

43. What is the conversion cost per equivalent unit in June?
A) \$1,254.32
B) \$1,579.14
C) \$1,730.20
D) \$1,890.35

Answer the following questions 44, 45, 46, 47, 48 using the information below:

The Morgan Models company manufacturers replica plastic airplane and motorized vehicle models. During October, the
firm's Assembly Department started production of 60,000 models. During the month, the firm completed 66,000 models,
and transferred them to the Finishing Department. The firm ended the month with 22,000 models in ending inventory.
There were 28,000 models in beginning inventory. All direct materials costs are added at the beginning of the production
cycle and conversion costs are added uniformly throughout the production process. The FIFO method of process costing
is used by Morgan. Beginning work in process was 25% complete as to conversion costs, while ending work in process
was 50% complete as to conversion costs.

Beginning inventory:
Direct materials costs    \$39,200
Conversion costs          \$30,800

Manufacturing costs added during the accounting period:
Direct materials costs \$90,000
Conversion costs         \$280,000

44. How many of the units that were started during October were completed during October?
A) 30,000
B) 38,000
C) 32,000
D) 60,000

45. What were the equivalent units for conversion costs during October?
A) 21,000
B) 62,000
C) 70,000
D) 87,000

46. What is the amount of direct materials cost assigned to ending work-in-process inventory at the end of October?
A) \$22,000
B) \$44,000
C) \$39,200
D) \$ 33,000

47. What is the cost of the goods transferred out during October?
A) \$363,000
B) \$330,000
C) \$340,000
D) \$375,000

Answer the following questions 48 & 49 using the information below:

Lehman Pottery Company manufactures clay molded pottery on an assembly line. Its standard costing system uses two
cost categories, direct materials and conversion costs. Each product must pass through the Assembly Department and the
Finishing Department. Direct materials are added at the beginning of the production process. Conversion costs are
allocated evenly throughout production.

Data for the Assembly Department for August 2008 are:
Work in process, beginning inventory: 800 units
Direct materials (100% complete)
Conversion costs (40% complete)

Units started during August              450 units

Work in process, ending inventory:       300 units
Direct materials (100% complete)
Conversion costs (60% complete)

Costs for August:
Standard costs for Assembly:
Direct materials                         \$30 per unit
Conversion costs                         \$55 per unit

Work in process, beginning inventory:
Direct materials                      \$22,000
Conversion costs                      \$16,500

48. What is the balance in ending work-in-process inventory?
A) \$25,500
B) \$ 38,500
C) \$15,600
D) \$18,900
49. Which of the following journal entries records the Assembly Department's conversion costs for the month, assuming
conversion costs are 10% higher than expected?
A) Assembly Department Conversion Cost Control           39,325
Various accounts       39,325
B) Materials Inventory 39,325
Assembly Department Conversion Cost Control 39,325
C) Assembly Department Conversion Cost Control     49,005
Various accounts       49,005
D) Materials Inventory 49,005
Work in Process Assembly 49,005

Chapter 18
50. Costs of normal spoilage are usually accounted for as:
A) part of the cost of goods sold
B) part of the cost of goods manufactured
C) a separate line item in the income statement
D) an asset in the balance sheet

51. Companies that attempt to achieve zero defects in the manufacturing process treat spoilage as:
A) scrap
B) reworked units
C) abnormal spoilage
D) normal spoilage

52. Which one of the following conditions usually exists when comparing normal and abnormal spoilage to
controllability?

Normal Spoilage           Abnormal Spoilage
A)      Controllable              Controllable
B)      Controllable              Uncontrollable
C)      Uncontrollable            Uncontrollable
D)      Uncontrollable            Controllable

Answer the following questions 53, 54, 55, 56 using the information below:

Fish Fillet Incorporated obtains fish and then processes them into frozen fillets and then prepares the frozen fish fillets for
distribution to its retail sales department. Direct materials are added at the initiation of the cycle. Conversion costs are
incurred evenly throughout the production cycle. Before inspection, some fillets are spoiled due to nondetectible defects.
Inspection occurs when units are 50% converted. Spoiled fillets generally constitute 3.5% of the good fillets. Data for
April 2008 are as follows:

WIP, beginning inventory 4/1/2008       40,000 fillets
Direct materials (100% complete)
Conversion costs (50% complete)
Started during April     75,000 fillets
Completed and transferred out 4/31/2008          100,000 fillets
WIP, ending inventory 4/31/2008         8,000 fillets
Direct materials (100% complete)
Conversion costs (20% complete)

Costs for April:
WIP, beginning Inventory:
Direct materials \$ 55,000
Conversion costs         40,000

53. What is the number of total spoiled units?
A) 8,000 units
B) 5,000 units
C) 25,000 units
D) 7,000 units

54. Normal spoilage totals:
A) 3,500 units
B) 0 units
C) 8,000 units
D) 7,000 units

55. Abnormal spoilage totals:
A) 3,500 units
B) 0 units
C) 8,000 units
D) 7,000 units

56. What is the total cost per equivalent unit using the weighted-average method of process costing?
A) \$4.00
B) \$1.74
C) \$2.10
D) \$3.84

Answer the following questions 57, 58, 59, 60 using the information below:

Samantha's Office Supplies manufactures desk organizers in its Processing Department. Direct materials are included at
the inception of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred
evenly throughout the production cycle. Inspection takes place as units are placed into production. After inspection, some
units are spoiled due to nondetectible material defects. Spoiled units generally constitute 4% of the good units. Data
provided for February 2008 are as follows:

WIP, beginning inventory 2/1/2008     25,000 units
Direct materials (100% complete)
Conversion costs (50% complete)

Started during February                  82,000 units
Completed and transferred out            81,000 units

WIP, ending inventory 2/29/2008       15,000 units
Direct materials (100% complete)
Conversion costs (25% complete)

Costs:
WIP, beginning inventory:
Direct materials                \$ 150,000
Conversion costs                 44,000

57. What are the normal and abnormal spoilage units, respectively, for February when using FIFO?
A) 1,400 units; 1,480 units
B) 3,280 units; 1,640 units
C) 3,240 units; 7,760 units
D) 3,240 units; 11,000 units

58. What costs would be associated with normal and abnormal spoilage, respectively, using the FIFO method of process
costing?
A) \$12,571; \$30,108
B) \$30,108; \$12,571
C) \$1,257; \$3,010
D) \$8,000; \$4,000

59. What are the direct material and conversion costs of all the units that were initially in the beginning work-in-process
inventory and were subsequently shipped? Take into account the costs related to the completion of the conversion of the
units during the month. Use the FIFO method of process costing.?
A) \$38,250; \$24,850
B) \$0; \$16,500
C) \$40,000; \$21,590
D) \$49,500; \$13,600

60. What are the total costs of all the units that were initially in the beginning work-in-process inventory and were
subsequently shipped? Take into account the costs related to the completion of the conversion of the units during the
month. Use the FIFO method of process costing.
A) \$194,000
B) \$16,500
C) \$210,500
D) \$ 97,000

61. The Harleysville Manufacturing Shop produces motorcycle parts. Typically, 10 pieces out of a job lot of 1,000 parts
are spoiled. Costs are assigned at the inspection point, \$50.00 per unit. Spoiled pieces may be disposed at \$10.00 per unit.
The spoiled goods must be inventoried appropriately when the normal spoilage is detected. Job 101 requires the
production of 2,500 good parts.

Which of the following journal entries would be correct if the spoilage occurred due to specifications required for Job
101?
A) Work-in-Process Control      100
Materials Control        100
B) Materials Control 100
Work-in-Process Control          100
C) Materials Control 250
Work-in-Process Control          250
D) Work-in-Process Control      250
Materials Control        250

Chapter 21
62. The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of \$950,000. The
investment is expected to generate \$350,000 in annual cash flows for a period of four years. The required rate of return is
14%. The old machine can be sold for \$50,000. The machine is expected to have zero value at the end of the four-year
period. What is the net present value of the investment? Would the company want to purchase the new machine? Income
taxes are not considered.
A) \$119,550; yes
B) \$69,550; no
C) \$1,019,550; yes
D) \$326,750; no

63. The minimum annual acceptable rate of return on an investment is the:
A) accrual accounting rate of return
B) hurdle rate
C) internal rate of return
D) net present value

64. Upper Darby Park Department is considering a new capital investment. The following information is available on the
investment. The cost of the machine will be \$144,192. The annual cost savings if the new machine is acquired will be
\$40,000. The machine will have a 5-year life, at which time the terminal disposal value is expected to be zero. Upper
Darby Park Department is assuming no tax consequences. What is the internal rate of return for Upper Darby Park
Department?
A) 10%
B) 12%
C) 14%
D) 16%

65. The payback method of capital budgeting approach to the investment decision highlights:
A) cash flow over the life of the investment
B) the liquidity of the investment
C) the tax savings of the depreciation amounts
D) having as lengthy payback time as possible

66. Springtime Flower Company provides flowers and other nursery products for decorative purposes in medium to large
sized restaurants and businesses. The company has been investigating the purchase of a new specially equipped van for
deliveries. The van has a value of \$61,875 with a seven-year life. The expected additional cash inflows are \$13,750 per
year. What is the payback period on this investment?
A) 3 years
B) 4.5 years
C) 6 years
D) NA - project not feasible

67. The Silver Shades Corporation disposes a capital asset with an original cost of \$115,000 and accumulated depreciation
of \$62,500 for a salvage price of \$18,000. Silver Shades's tax rate is 30%. Calculate the after-tax cash inflow from the
disposal of the capital asset.
A) \$1,035
B) \$19,035
C) \$18,000
D) \$28,350

68.An example of a sunk cost in a capital budgeting decision for new equipment is:
A) an increase in working capital required by a particular investment choice
B) the book value of the old equipment
C) the necessary transportation costs on the new equipment
D) All of these answers are correct.

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