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26 - 1 Incremental Analysis and Capital Budgeting Ex. 197 Siesta Company estimates the following cash flows and depreciation on a project that will cost $200,000 and will last 10 years with no salvage value: Revenues Sales revenue$80,000 Operating expenses Salary expense$32,000 Depreciation expense20,000 Miscellaneous expenses    8,000  60,000 Net Income$20,000 Ex. 197(Cont.) Instructions (a)Calculate the expected annual rate of return on this project.
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26 - 1 Incremental Analysis and Capital Budgeting Ex. 186 Bay States Chemical Corporation produces an oil-based chemical product which it sells to paint manufacturers. In 2014, the company incurred $344,000 of costs to produce 40,000 gallons of the chemical. The selling price of the chemical is $11.00 per gallon. The costs per.
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26 - 1 Incremental Analysis and Capital Budgeting Ex. 182 Lean Inc. budgeted to produce 10,000 widgets during 2014. Lean has capacity to produce 12,000 units. Fixed factory overhead is allocated to production. The following estimated costs were provided: Direct material ($7/unit)$  70,000 Direct labor ($15/hr. × 2 hrs./unit)300,000 Variable manufacturing overhead ($3/unit)30,000 Fixed factory overhead costs.
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25 - 1 Standard Costs and Balanced Scorecard MATCHING 208.Match the items in the two columns below by entering the appropriate code letter in the space provided.               A.Variances              F.              Materials price variance               B.Standard costs              G.              Labor quantity variance               C.Standard cost accounting system              aH.Overhead controllable variance               D.Normal standards              aI.              Overhead volume variance               E.Ideal standards             .
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26 - 1 Incremental Analysis and Capital Budgeting Ex. 193 Brown Bear Merchandising Inc. has three product lines in its retail stores: books, videos, and music. Results of the fourth quarter are presented below:   Books  Music Videos   Total Revenue$25,000$40,000$28,000$93,000 Variable departmental costs17,00021,00012,00050,000 Direct fixed costs4,0006,0003,00013,000 Allocated fixed costs    5,000    5,000    5,000  15,000 Net income (loss)$ (1,000)$  8,000$  8,000$ .
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26 - 1 Incremental Analysis and Capital Budgeting Exercises Ex. 178 FromZetherz Company produced and sold 50,000 units of product and is operating at 80% of plant capacity. Unit information about its product is as follows: Sales Price$68 Variable manufacturing cost$42 Fixed manufacturing cost ($600,000 ÷ 50,000)  12  54 Profit per unit$14 The company received a proposal from a.
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26 - 1 Incremental Analysis and Capital Budgeting 108.              A company can produce and sell only one of the following two products: MachineContribution Hours RequiredMargin Per Unit Product 13$30 Product 22$25 If the company has machine capacity of 3,000 hours, what is the total contribution margin of the product it should produce to maximize net income? a.              $37,500 b.             .
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26 - 1 Incremental Analysis and Capital Budgeting S-A E  226(Ethics) Selma Bosco is on the capital budgeting committee for her company, Magnificent Tile. Bill Baumhauer is an engineer for the firm. Bill expresses his disappointment to Selma that a project that was given to him to review before submission looks extremely good.
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26 - 1 Incremental Analysis and Capital Budgeting SHORT-ANSWER ESSAY QUESTIONS S-A E  222 Management is often faced with the alternative of continuing to make a product or component internally, or going to an external source and purchasing the product or component. In gathering relevant information for these two alternatives, briefly identify the quantitative.
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26 - 1 Incremental Analysis and Capital Budgeting 21.              If a company has only a certain number of machine hours available for production, it is generally more profitable to produce and sell the product with the highest unit contribution margin. 22.              Capital budgeting decisions usually involve large investments and can have a significant.
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25 - 1 Standard Costs and Balanced Scorecard SHORT-ANSWER ESSAY QUESTIONS S-A E  209 (a)  Explain the similarities and differences between standards and budgets. (b)  Contrast the accounting for standard and budgets. S-A E  210 Sun Company computes variances as a basis for evaluating the performance of managers responsible for controlling costs. For several months, the labor.
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26 - 1 Incremental Analysis and Capital Budgeting Ex. 201 Messina Company is considering a capital investment of $300,000 in additional productive facilities. The new machinery is expected to have a useful life of 5 years with no salvage value. Depreciation is by the straight-line method. During the life of the investment, annual.
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26 - 1 Incremental Analysis and Capital Budgeting COMPLETION STATEMENTS               206.An important purpose of management accounting is to provide _____________________ for decision making.               207.The process used to identify the financial data that change under alternative courses of action is called __________________ analysis.               208.In a decision on whether an order should be accepted.
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25 - 1 Standard Costs and Balanced Scorecard aEx. 191 Dustin Company planned to produce 20,000 units of product and work at the 60,000 direct labor hours level of activity for 2014. Manufacturing overhead at this level of activity and the predetermined overhead rate are as follows: Predetermined Overhead Rate per Direct Labor Hour Variable manufacturing overhead$300,000$5 Fixed.
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26 - 1 Incremental Analysis and Capital Budgeting MULTIPLE CHOICE QUESTIONS 38.              A major accounting contribution to the managerial decision-making process in evaluating possible courses of action is to a.              assign responsibility for the decision. b.              provide relevant revenue and cost data about each course of action. c.              determine the amount of money that should be.
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25 - 1 Standard Costs and Balanced Scorecard Ex. 196 The following information was taken from the annual manufacturing overhead cost budget of Clint Company: Variable manufacturing overhead costs$93,000 Fixed manufacturing overhead costs$62,000 Normal production level in direct labor hours31,000 Normal production level in units15,500 During the year, 14,000 units were produced, 32,000 hours were worked, and the.
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26 - 1 Incremental Analysis and Capital Budgeting Ex. 204 Jonah Company is considering investing in a project that will cost $136,520 and have no salvage value at the end of its 5-year life. It is estimated that the project will generate annual cash inflows of $36,000 each year. The company has a.
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26 - 1 Incremental Analysis and Capital Budgeting Ex. 189 Mountain Lumber Corporation uses a machine that removes the bark from cut timber. The machine is unreliable, resulting in significant downtime and wasted labor costs. Management is considering replacing the machine with a more efficient one which will minimize downtime and excessive labor.
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G - 1 Time Value of Money TRUE-FALSE STATEMENTS 1.Interest is the difference between the amount borrowed and the amount repaid or collected. 2.Simple interest is computed on the principal and any interest earned that has not been paid or received. 3.The rate of interest is generally stated at an annual rate. 4.The future value is.
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26 - 1 Incremental Analysis and Capital Budgeting TRUE-FALSE STATEMENTS 1.              An important step in management's decision-making process is to determine and evaluate possible courses of action. 2.              In making decisions, management ordinarily considers both financial and nonfinancial information. 3.              In incremental analysis, total variable costs will always change under alternative courses of action, and.
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26 - 1 Incremental Analysis and Capital Budgeting 78.              Lean Foods produces a variety of snack products, including fried pork rinds. The cost of one batch of pork rinds is below: Direct materials$12.00 Direct labor10.00 Variable overhead7.00 Fixed overhead9.00 An outside supplier has offered to produce the pork rinds for $25 per batch. How much will Lean.
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26 - 1 Incremental Analysis and Capital Budgeting 88.              The focus of a sell or process further decision is a.              incremental revenue. b.              incremental cost. c.              both incremental revenue and incremental cost. d.              neither incremental revenue nor incremental cost. 89.              TAD Company gathered the following data about the three products that it produces: PresentEstimated AdditionalEstimated Sales ProductSales Value Processing.
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26 - 1 Incremental Analysis and Capital Budgeting 128.              Rumsy Company is considering buying equipment for $240,000 with a useful life of five years and an estimated salvage value of $10,000. If annual expected income is $21,000, the denominator in computing the annual rate of return is a.              $250,000. b.              $120,000. c.              $240,000. d.              $125,000. 129.              A.
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26 - 1 Incremental Analysis and Capital Budgeting Ex. 199 Hooverville Service Center just purchased an automobile hoist for $16,900. The hoist has a 5-year life and an estimated salvage value of $1,250. Installation costs were $3,770, and freight charges were $960. Laramie uses straight-line depreciation. The new hoist will be used to replace.
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26 - 1 Incremental Analysis and Capital Budgeting Ex. 184 Grouperman Corporation currently manufactures a subassembly for its main product. The costs per unit are as follows: Direct materials$10 Direct labor10 Variable overhead7 Fixed overhead    9 Total$36 Fez Company has contacted Grouperman with an offer to sell it 7,000 of the subassemblies for $30 each. If Troutman makes the.
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26 - 1 Incremental Analysis and Capital Budgeting Ex. 191 Multi-Cities Inc. has three divisions: Buck, Leonard, and Hickory. The results of August, 2014 are presented below.   Buck  LeonardHickory    Total Units sold3,0005,0002,00010,000 Revenue$70,000$50,000$40,000$160,000 Less variable costs32,00026,00016,00074,000 Less direct fixed costs14,00019,00012,00045,000 Less allocated fixed costs    6,000  10,000    4,000    20,000 Net income$18,000$ (5,000)$  8,000$  21,000 All of the allocated costs will.
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26 - 1 Incremental Analysis and Capital Budgeting Ex. 195 Atlanta Manufacturing Company has 8,000 machine hours available to use to produce either Product A or Product B. The cost accounting department developed the following unit information for each of the products: Product AProduct B Sales price$60$71 Direct materials1921 Direct labor1514 Variable manufacturing overhead812 Fixed manufacturing overhead36 Machine hours required.61.2 Management.
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26 - 1 Incremental Analysis and Capital Budgeting 118.              A company is considering purchasing factory equipment which costs $480,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the equipment is purchased, annual revenues are expected to be $225,000 and annual operating expenses exclusive.
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26 - 1 Incremental Analysis and Capital Budgeting Ex. 196 Austin Company manufactures and sells two products. Relevant per unit data concerning each product are given below:      Product      BasicSuperior Selling price$33.60 $38.40 Variable costs$12.00$14.40 Machine hours4.88 Ex. 196(Cont.) Instructions (a)Compute the contribution margin per unit of the limited resource for each product. (b)If 1,200 additional machine hours are available, which product should.
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26 - 1 Incremental Analysis and Capital Budgeting 158.              If an unprofitable segment is eliminated a.              it is impossible for net income to decrease. b.              fixed expenses allocated to the eliminated segment will be eliminated. c.              variable expenses of the eliminated segment will be eliminated. d.              it is impossible for net income to increase. 159.              All of.
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26 - 1 Incremental Analysis and Capital Budgeting 11.              An opportunity cost is the potential benefit obtained by using resources in an alternative course of action. 12.              If an incremental make or buy analysis indicates that it is cheaper to buy rather than make an item, management should always make the decision to.
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25 - 1 Standard Costs and Balanced Scorecard aEx. 189 Jayson Industries provided the following information about its standard costing system for 2014: Standard DataActual Data Labor2 hrs. @ $21 per hr.Produced9,000 units Budgeted fixed overhead$100,000Labor worked17,000 hrs. costing $340,000 Budgeted variable overhead$30 per unitActual overhead$376,000 Budgeted production10,000 units Jayson applies fixed overhead at $10 per unit produced. Instructions Determine.
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25 - 1 Standard Costs and Balanced Scorecard aEx. 195 Presented below is a flexible manufacturing budget for Jasmine Company, which manufactures fine timepieces: Activity Index: Standard direct labor hours 2,8003,2003,6004,000 Variable costs Indirect materials$  5,600$  6,400$  7,200$  8,000 Indirect labor3,2203,6804,1404,600 Utilities    7,280    8,320    9,360  10,400 Total variable16,10018,40020,70023,000 Fixed costs Supervisory salaries1,0001,0001,0001,000 Rent    3,000    3,000    3,000    3,000 Total fixed    4,000    4,000    4,000    4,000 Total costs$20,100$22,400$24,700$27,000 aEx..
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26 - 1 Incremental Analysis and Capital Budgeting 58.              If a company must expand capacity to accept a special order, it is likely that there will be a.              an increase in unit variable costs. b.              no increase in fixed costs. c.              an increase in variable and fixed costs per unit. d.              an increase in fixed costs. 59.             .
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25 - 1 Standard Costs and Balanced Scorecard S-A E  212 What are the four perspectives used in the balanced scorecard? Discuss the nature of each, and how the perspectives are linked. S-A E  213(Ethics) Dednam, Inc. is the manufacturer of miniature models, especially of automobiles with historical interest. The company is developing new standard.
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26 - 1 Incremental Analysis and Capital Budgeting BRIEF Exercises BE 166 Bayonette Inc. is considering Plan 1 which is estimated to have sales of $60,000 and costs of $22,500.  The company currently has sales of $57,000 and costs of $21,500. Instructions Compare plans using incremental analysis. BE 167 Brigg Enterprises produces miniature parasols. Each parasol consists of.
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26 - 1 Incremental Analysis and Capital Budgeting MATCHING 221.Match the items below by entering the appropriate code letter in the space provided.               A.Incremental analysis              F.              Cash payback technique               B.Opportunity cost              G.              Hurdle or cutoff rate               C.Discounted cash flow technique              H.Net present value method               D.Capital budgeting              I.              Sunk cost               E.Annual rate of return.
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26 - 1 Incremental Analysis and Capital Budgeting Ex. 187 Chipper Cow Dairy Inc. produces milk at a total cost of $75,000. The production generates 55,000 gallons of organic milk which can be sold for $2 per gallon to a pasteurization company, or the milk can be processed further into ice cream and.
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25 - 1 Standard Costs and Balanced Scorecard Ex. 193 Carson Company uses a standard cost accounting system. During April, 2014, the company reported the following manufacturing variances: Materials price variance$1,600F Materials quantity variance2,400U Labor price variance600U Labor quantity variance2,200U Overhead controllable500F Overhead volume3,000U In addition, 15,000 units of product were sold at $18 per unit. Each unit sold had.
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25 - 1 Standard Costs and Balanced Scorecard aEx. 194 Newman Company developed the following standards for 2014: NEWMAN COMPANY Standard Cost Card Cost ElementsStandard Quantity×Standard Price=Standard Cost Direct materials5 pounds$  5$25 Direct labor1 hour$1818 Manufacturing overhead1 hour$10  10 $53 The company planned to produce 120,000 units of product and work at the 120,000 direct labor level of activity in 2014..
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26 - 1 Incremental Analysis and Capital Budgeting BE 171 Western Company has a machine that affixes labels to bottles. The machine has a book value of $60,000 and a remaining useful life of 3 years and no salvage value. A new, more efficient machine is available at a cost of $210,000 that.
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26 - 1 Incremental Analysis and Capital Budgeting 68.              Each of the following is a disadvantage of buying rather than making a component of a company's product except that a.              quality control specifications may not be met. b.              the outside supplier could increase prices significantly in the future. c.              profitable product lines may be dropped. d.             .
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26 - 1 Incremental Analysis and Capital Budgeting 31.              Accounting contributes to management's decision-making process through internal reports that review the actual impact of the decision. 32.              The process used to identify the financial data that change under alternative courses of action is called allocation of limited resources. 33.              If a company is operating.
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26 - 1 Incremental Analysis and Capital Budgeting 48.              Which of the following is not a true statement? a.              Incremental analysis might also be referred to as differential analysis. b.              Incremental analysis is the same as CVP analysis. c.              Incremental analysis is useful in making decisions. d.              Incremental analysis focuses on decisions that involve a choice.
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26 - 1 Incremental Analysis and Capital Budgeting 98.              Oscar Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old MachineNew Machine Cost$250,000$500,000 Accumulated Depreciation75,000-0- Remaining useful life10 years-0- Useful life-0-10 years Annual operating costs$200,000$150,500 If the old machine is replaced, it can be sold for $20,000. The net advantage.
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25 - 1 Standard Costs and Balanced Scorecard COMPLETION STATEMENTS               198.A ________________ is expressed as a unit amount, whereas a _________________ is expressed as a total amount.               199.Standards which represent optimum performance under perfect operating conditions are called _______________ standards, but most companies use _________________ standards which are rigorous but attainable.               200.In.
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26 - 1 Incremental Analysis and Capital Budgeting 148.              Use the following table, Present value of an Annuity of 1 Period   8%   9% 10% 1              .926.917.909 2              1.7831.7591.736 3              2.5772.5312.487 A company has a minimum required rate of return of 9%. It is considering investing in a project which costs $420,000 and is expected to generate cash inflows.
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26 - 1 Incremental Analysis and Capital Budgeting Ex. 180 Jim-Mate Company supplies schools with floor mattresses to use in physical education classes. Jim-Mate has received a special order from a large school district to buy 700 mats at $55 each. Acceptance of the special order will not affect fixed costs but will.
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26 - 1 Incremental Analysis and Capital Budgeting 138.              Use the following table, Present Value of an Annuity of 1 Period  8%  9% 10% 1              .926.917.909 2              1.7831.7591.736 3              2.5772.5312.487 A company has a minimum required rate of return of 8% and is considering investing in a project that costs $175,000 and is expected to generate cash inflows.
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26 - 1 Incremental Analysis and Capital Budgeting Ex. 203 Grayson Company is considering two new projects, each requiring an equipment investment of $72,000. Each project will last for three years and produce the following annual net income. Year      TIP      TOP 1$  8,000$  9,000 29,0009,000 3  14,000    9,000 $31,000$27,000 The equipment will have no salvage value at.
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