ACCT125 Quiz 3 of 3

 Question 11 points  Save   Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the cost-volume-profit chart.TrueFalse   Question 21 points  Save   Which of the following is an example of a cost that varies in total as the number of units produced changes? Salary of a production supervisor Direct materials cost Property taxes on factory buildings Straight-line depreciation on factory equipment   Question 31 points  Save   If fixed costs are $250,000, the unit selling price is $105, and the unit variable costs are $65, what is the break-even sales (in units)? 6,250 units 2,381 units 10,000 units 3,846 units   Question 41 points  Save   Tucker Co. manufactures office furniture. During the most productive month of the year, 3,600 desks were manufactured at a total cost of $192,000. In its slowest month, the company made 1,200 desks at a cost of $72,000. Using the high-low method of cost estimation, total fixed costs per month are $120,000. $12,000. $72,000. $11,600.   Question 51 points  Save   If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of sales, the contribution margin ratio is 40%.TrueFalse   Question 61 points  Save   Which of the following costs is an example of a cost that remains the same in total as the number of units produced changes? Direct labor Salary of a factory supervisor Units of production depreciation on factory equipment Direct materials   Question 71 points  Save   The data required for determining the break-even point for a business are the total estimated fixed costs for a period stated as a percentage of net sales.TrueFalse   Question 81 points  Save   A firm operated at 90% of capacity for the past year during which fixed costs were $320,000, variable costs were 60% of sales, and sales were $1,200,000. Operating profit was $400,000. $112,000. $144,000. $160,000.   Question 91 points  Save   Break-even analysis is one type of cost-volume-profit analysis.TrueFalse   Question 101 points  Save  If the unit selling price is $40, the volume of sales is $3,000,000, sales at the break-even point amount to $2,500,000, and the maximum possible sales are $3,300,000, the margin of safety is 12,500 units.TrueFalse   Question 111 points  Save   If fixed costs are $500,000 and the unit contribution margin is $40, what is the break-even point in units if fixed costs are reduced by $80,000? 25,000 20,000 10,500 12,500   Question 121 points  Save   Kennedy Co. sells two products, Arks and Bins. Last year, Kennedy sold 32,000 units of Arks and 18,000 units of Bins. Related data are:  Unit SellingUnit VariableUnit ContributionProductPriceCostMarginArks$80 $20 $60 Bins120 40 $80        

What was Kennedy Co.'s overall enterprise product’s unit contribution margin?

 $67.20 $70.00 $30.00 $100.00   Question 131 points  Save   Direct materials cost that varies with the number of units produced is an example of a fixed cost of production.TrueFalse   Question 141 points  Save   A low operating leverage is normal for highly automated industries.TrueFalse   Question 151 points  Save   If the volume of sales is $6,000,000 and sales at the break-even point amount to $4,800,000, the margin of safety is 25%.TrueFalse   Question 161 points  Save   As production increases, what would you expect to happen to fixed costs per unit? Increase Decrease Remain the same Either increase or decrease, depending on the variable costs   Question 171 points  Save   Costs that remain constant on a per-unit level as the level of activity changes are called fixed costs. mixed costs. opportunity costs. variable costs.   Question 181 points  Save   Cost behavior refers to the manner in which a cost changes as the related activity changes.TrueFalse   Question 191 points  Save   Variable costs are costs that remain constant in total with changes in the activity level.TrueFalse   Question 201 points  Save   The relevant range is useful for analyzing cost behavior for management decision-making purposes.TrueFalse   Question 211 points  Save   Which of the following conditions would cause the break-even point to increase? Total fixed costs increase Unit selling price increases Unit variable cost decreases Total fixed costs decrease   Question 221 points  Save   The point where the profit line intersects the left vertical axis on the profit-volume chart represents the maximum possible operating loss. the maximum possible operating income. the total fixed costs. the break-even point.   Question 231 points  Save   Variable costs are costs that vary in total in direct proportion to changes in the activity level.TrueFalse   Question 241 points  Save   DeGiaimo Co. has an operating leverage of 5. If next year's sales are expected to increase by 10%, then the company's operating income will increase by 50%.TrueFalse   Question 251 points  Save   Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the profit-volume chart.TrueFalse   Question 261 points  Save   If sales total $1,000,000, fixed costs total $400,000, and variable costs are 55% of sales, the contribution margin ratio is 45%.TrueFalse   Question 271 points  Save   If fixed costs are $810,000, the unit selling price is $60, and the unit variable costs are $48, what is the break-even sales (in units) if the variable costs are increased by $2? 16,200 units 57,875 units 81,000 units 67,500 units   Question 281 points  Save   Given the following cost and activity observations for Merritt Company’s utilities, use the high-low method to calculate Merritt’s fixed costs per month.  CostMachine HoursJanuary$52,600 20,000 February75,100 29,000 March57,000 22,000 April64,000 24,500       $25,100 $50,000 $12,500 $2,600   Question 291 points  Save   Knowing how costs behave is useful to management for all the following reasons EXCEPT for predicting customer demand. predicting profits as sales and production volumes change. estimating costs. changing an existing product production.   Question 301 points  Save   Variable costs as a percentage of sales for Leamon Inc. are 75%, current sales are $600,000, and fixed costs are $110,000. How much will operating income change if sales increase by $50,000? $37,500 increase $12,500 decrease $37,500 decrease $12,500 increase   Question 311 points  Save   If a business had a capacity of $10,000,000 of sales, actual sales of $6,000,000, break-even sales of $4,500,000, fixed costs of $1,800,000, and variable costs of 60% of sales, what is the margin of safety expressed as a percentage of sales? 25% 18% 33.3% 15%   Question 321 points  Save   Assume that Crowson Co. sold 8,000 units of Product A and 2,000 units of Product B during the past year. The unit contribution margins for Products A and B are $20 and $45, respectively. Crowson has fixed costs of $350,000. The break-even point in units is 14,000 units. 25,278 units. 8,000 units. 10,769 units.   Question 331 points  Save   Fixed costs are costs that vary in total dollar amount as the level of activity changes.TrueFalse   Question 341 points  Save   Assuming that the quantities of inventory on hand during the current year were sufficient to meet all demands for sales, a decrease in the inventory turnover for the current year when compared with the turnover for the preceding year indicates an improvement in the management of inventory.TrueFalse   Question 351 points  Save   Balance sheet and income statement data indicate the following: Bonds payable, 12% (issued 1998, due 2022)$1,000,000Preferred 5% stock, $100 par (no change during year)300,000Common stock, $50 par (no change during year)2,000,000Income before income tax for year300,000Income tax for year80,000Common dividends paid50,000Preferred dividends paid15,000  

Based on the data presented above, what is the number of times interest charges were earned (rounded to one decimal place)?

 3.5 2.2 4.0 The answer cannot be determined.   Question 361 points  Save   The terms acid-test ratio and quick ratio refr to the same ratio--the instant debt-paying ability of a company.TrueFalse   Question 371 points  Save   Interpreting financial analysis should be considered in light of conditions peculiar to the industry and the general economic conditions.TrueFalse   Question 381 points  Save   Based on the following data for the current year, what is the inventory turnover? Net sales on account during year$ 500,000Cost of merchandise sold during year300,000Accounts receivable, beginning of year45,000Accounts receivable, end of year35,000Inventory, beginning of year90,000Inventory, end of year110,000   3.0 2.7 4.0 3.3   Question 391 points  Save   The rate earned on total common stockholders' equity for most thriving businesses will be less than the rate earned on total assets.TrueFalse   Question 401 points  Save   The percent of fixed assets to total assets is an example of vertical analysis. solvency analysis. profitability analysis. horizontal analysis.   Question 411 points  Save   Based on the following data for the current year, what is the number of days' sales in inventory (rounded to the nearest whole day)? Net sales on account during year$1,204,000Cost of merchandise sold during year630,000Accounts receivable, beginning of year75,000Accounts receivable, end of year85,000Inventory, beginning of year81,600Inventory, end of year98,600   58 48 53 30   Question 421 points  Save   If a firm has an quick ratio of 1, the subsequent payment of an account payable will cause the ratio to increase.TrueFalse   Question 431 points  Save   The number of days' sales in inventory is one means of expressing the relationship between net sales and accounts receivable.TrueFalse   Question 441 points  Save   For most profitable companies, the rate earned on total assets will be less than the rate earned on stockholders’ equity. the rate earned on total liabilities and stockholders' equity. the rate earned on sales. cannot be determined without more information.   Question 451 points  Save   Profitability refers to the ability of the business to earn a reasonable amount of income. provide owners with dividends. pay its current and noncurrent liabilities. manage its accounts receivable and inventory.   Question 461 points  Save   If a company has current assets totaling $56,000 and current liabilities totaling $40,500, then the company’s working capital totals $15,500.TrueFalse   Question 471 points  Save   Which of the following is NOT included in the computation of the quick ratio? Inventory Marketable securities Accounts receivable Cash   Question 481 points  Save   Ratios and various other analytical measures are NOT a substitute for sound judgment, nor do they provide definitive guides for action.TrueFalse   Question 491 points  Save   The ratio computed by dividing current assets by current liabilities is the current ratio. earnings ratio. acid-test rtio. quick ratio.   Question 501 points  Save   Which one of the following is NOT a characteristic generally evaluated in ratio analysis? Liquidity Profitability Solvency Marketability   Question 511 points  Save   Based on the following data for the current year, what is the number of days' sales in accounts receivable? Net sales on account during year$1,095,000Cost of merchandise sold during year700,000Accounts receivable, beginning of year47,500Accounts receivable, end of year37,500Inventory, beginning of year190,000Inventory, end of year220,000   12.5 14.17 25.76 15.8   Question 521 points  Save   A company with working capital of $500,000 and a current ratio of 2.25 pays a $100,000 short-term liability. The amount of working capital immediately after payment is $600,000. $400,000. $500,000. $100,000.   Question 531 points  Save   Solvency analysis focuses on the ability of a business to make a profit.TrueFalse   Question 541 points  Save   An increase in the ratio of stockholders' equity to liabilities indicates an improvement in the margin of safety for creditors.TrueFalse   Question 551 points  Save   “Working capital” is another term for the current ratio.TrueFalse   Question 561 points  Save   A company with $60,000 in current assets and $40,000 in current liabilities pays a $1,000 current liability. As a result of this transaction, the current ratio and working capital will both decrease. both increase. increase and remain the same, respectively. remain the same and decrease, respectively.   Question 571 points  Save   Based on the following data for the current year, what is the accounts receivable turnover? Net sales on account during year$ 525,500Cost of merchandise sold during year375,000Accounts receivable, beginning of year50,000Accounts receivable, end of year40,000Inventory, beginning of year110,000Inventory, end of year140,000   13.14 11.7 10.35 8.3   Question 581 points  Save   Which of the following ratios provides a solvency measure that shows the margin of safety of noteholders or bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis? Ratio of fixed assets to long-term liabilities Ratio of net sales to assets Number of days' sales in receivables Rate earned on stockholders' equity   Question 591 points  Save   Current position analysis indicates a company's ability to liquidate current liabilities.TrueFalse   Question 601 points  Save   The following information is available for Morgan Corp.:  2010Market price per share of common stock$25.00Earnings per share on common stock1.25  

Which of the following statements is correct?

 The price-earnings ratio is 20 and a share of common stock was selling for 20 times the amount of earnings per share at the end of 2010. The price-earnings ratio is 5.0% and a share of common stock was selling for 5.0% more than the amount of earnings per share at the end of 2010. The price-earnings ratio is 10 and a share of common stock was selling for 125 times the amount of earnings per share at the end of 2010. The market price per share and the earnings per share are not statistically related to each other.   Question 611 points  Save   The independent auditor's report does which of the following? Describes which financial statements are covered by the audit Gives the auditor's opinion regarding the fairness of the financial statements Summarizes what the auditor did States that the financial statements are truthful   Question 621 points  Save   Based on the following data for the current year, what is the accounts receivable turnover? Net sales on account during year$ 500,000Cost of merchandise sold during year300,000Accounts receivable, beginning of year45,000Accounts receivable, end of year35,000Inventory, beginning of year90,000Inventory, end of year110,000   12.5 14.3 11.1 7.5   Question 631 points  Save   An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to decrease. remain the same. either increase or decrease. increase.   Question 641 points  Save   Using vertical analysis of the income statement, a company's net income as a percentage of net sales is 10%; therefore, the operating expenses as a percentage of sales must be 90%.TrueFalse   Question 651 points  Save   The ratio of current assets to current liabilities is referred to as the acid-test ratio.TrueFalse   Question 661 points  Save   Which of the following is included in the computation of the quick ratio? Prepaid rent Accounts receivable Inventory Supplies   Question 671 points  Save   Qualitative considerations are best evaluated using present value methods such as internal rate of return.TrueFalse   Question 681 points  Save   The process by which management allocates available investment funds among competing capital investment proposals is termed capital rationing.TrueFalse   Question 691 points  Save   The management of London Corporation is considering the purchase of a new machine costing $750,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the this information, use the following data in determining the acceptability in this situation:  Income fromNet CashYearOperationsFlow1$37,500 $187,500237,500   187,500337,500   187,500437,500   187,500537,500   187,500    

The net present value for this investment is

 positive $39,750. positive $118,145. negative $118,145. negative $39,750.   Question 701 points  Save   When several alternative investment proposals of the same amount are being considered, the one with the largest net present value is the most desirable. If the alternative proposals involve different amounts of investment, it is useful to prepare a relative ranking of the proposals by using a(n) average rate of return. consumer price index. present value index. price-level index.   Question 711 points  Save   Which of the following provisions of the Internal Revenue Code can be used to reduce the amount of the income tax expense arising from capital investment projects? Interest deduction Depreciation deduction Minimum tax provision Charitable contributions   Question 721 points  Save   If a proposed expenditure of $80,000 for a fixed asset with a 4-year life has an annual expected net cash flow and net income of $32,000 and $12,000, respectively, the cash payback period is 2.5 years.TrueFalse   Question 731 points  Save   Which method of evaluating capital investment proposals uses the concept of present value to compute a rate of return? Average rate of return Internal rate of return Cash payback period Accounting rate of return   Question 741 points  Save   The process by which management allocates available investment funds among competing investment proposals is called investment capital. investment rationing. cost-volume-profit analysis. capital rationing.   Question 751 points  Save   The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and no residual value, is expected to yield total net income of $300,000 for the 5 years. The expected average rate of return is 30%.TrueFalse   Question 761 points  Save   The management of London Corporation is considering the purchase of a new machine costing $750,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the this information, use the following data in determining the acceptability in this situation:  Income fromNet CashYearOperationsFlow1$37,500 $187,500237,500   187,500337,500   187,500437,500   187,500537,500   187,500    

The average rate of return for this investment is

 5%. 10%. 25%. 15%.   Question 771 points  Save   Which of the following are present value methods of analyzing capital investment proposals? Internal rate of return and average rate of return Average rate of return and net present value Net present value and internal rate of return Net present value and payback   Question 781 points  Save   If the average rate of return on an asset exceeds the minimum acceptable rate of return for investments, the asset should be purchased.TrueFalse   Question 791 points  Save   One issue to consider when investing in assets in foreign countries is that local currency may weaken to the dollar causing adverse effects on the investment’s return. that the dollar may weaken to the local currency causing adverse effects on the investment’s return. that local currency may be difficult to exchange into dollars causing problems in receiving a return on the investment. that dollars may be difficult to exchange into local currency causing problems in receiving any return on investment.   Question 801 points  Save   The present value index is computed using which of the following formulas? Amount to be invested/Average rate of return Total present value of net cash flow/Amount to be invested Total present value of net cash flow/Average rate of return Amount to be invested/Total present value of net cash flow   Question 811 points  Save   The methods of evaluating capital investment proposals can be grouped into two general categories that can be referred to as (1) methods that ignore present value and (2) present values methods.TrueFalse   Question 821 points  Save   By converting dollars to be received in the future into current dollars, the present value methods take into consideration that money has an international rate of exchange. is the language of business. is the measure of assets, liabilities, and stockholders' equity on financial statements. has a time value.   Question 831 points  Save   Using the following partial table of present value of $1 at compound interest, determine the present value of $20,000 to be received three years hence, with earnings at the rate of 10% a year. Year6%10%12%1.943.909.8932.890.826.7973.840.751.7124.792.683.636     $14,240 $16,800 $15,020 $15,840   Question 841 points  Save   Qualitative considerations in capital investment decisions are most appropriate for strategic investments or those that are designed to affect a company’s long-term ability to generate profits.TrueFalse   Question 851 points  Save   The methods of evaluating capital investment proposals can be grouped into two general categories that can be referred to as (1) average rate o return and (2) cash payback methods.TrueFalse   Question 861 points  Save   Care must be taken involving capital investment decisions since normally a long-term commitment of funds is involved and operations could be affected for many years.TrueFalse   Question 871 points  Save   Crane Company is considering the acquisition of a machine that costs $60,000. The machine is expected to have a useful life of 5 years, a negligible residual value, an annual cash flow of $15,000, and annual operating income of $15,000. What is the estimated cash payback period for the machine? 1.7 years 3 years 4 years 5 years   Question 881 points  Save   Using the following partial table of present value of $1 at compound interest, compute the present value of $20,000 (rounded to nearest dollar) to be received one year from today, assuming an earnings rate of 15%. Year10%15%20%10.9090.8700.83321.7361.6261.52832.4872.2832.10643.1702.8552.58953.7913.3532.99164.3553.7853.32674.8684.1603.605     $17,400. $17,000. $20,000. $15,451.   Question 891 points  Save   Mars Corp. is choosing between two different capital investment proposals. Machine A has a useful life of 4 years, and Machine B has a useful life of 6 years. Each proposal requires an initial investment of $200,000, and the company desires a rate of return of 10%. Although Machine B has a useful life of 6 years, it could be sold at the end of 4 years for $35,000. YearPresent Value

of $1 at 10%

10.90920.82630.75140.68350.62160.513  

Machine A will generate net cash flow of $70,000 in each of the four years. Machine B will generate $80,000 in year 1, $70,000 in year 2, $60,000 in year 3, and $40,000 per year for the remaining 3 years of its useful life.

Which of the following statements portrays the most accurate analysis between the two proposals?

 Mars should invest in Machine A because the net present value of Machine A after 4 years is higher than the net present value of Machine B after 4 years. Mars should invest in Machine B because the net present value of Machine A after 4 years is lower and the net present value of Machine B after 6 years. Mars should invest in Machine B because the net present value of Machine A after 4 years is lower than the net present value of Machine B after 4 years. Mars should invest in Machine A because the net present value of Machine A after 4 years is higher than the net present value of Machine B after 6 years.   Question 901 points  Save   A series of equal cash flows at fixed intervals is termed a(n) present value index. price-level index. net cash flow. annuity.   Question 911 points  Save   Periods in time that experience increasing price levels are known as periods of inflation. recession. depression. deflation.   Question 921 points  Save   The management of London Corporation is considering the purchase of a new machine costing $750,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the this information, use the following data in determining the acceptability in this situation:  Income fromNet CashYearOperationsFlow1$37,500 $187,500237,500   187,500337,500   187,500437,500   187,500537,500   187,500    

The present value index for this investment is

 1.00. .95. 1.25. 1.05.   Question 931 points  Save   When evaluating two competing proposals with unequal lives, management should give greater consideration to the investment with the longer life because the asset will be useful to the company for a longer period of time.TrueFalse   Question 941 points  Save   A qualitative characteristic that may impact upon capital investment analysis is manufacturing productivity.TrueFalse   Question 951 points  Save   The payback period is determined using which of the following formulas? Amount to be invested/Annual average net income Annual net cash flow/Amount to be invested Annual average net income/Amount to be invested Amount to be invested/Equal annual net cash flows   Question 961 points  Save   Average rate of return equals estimated average annual income divided by average investment.TrueFalse   Question 971 points  Save   The management of London Corporation is considering the purchase of a new machine costing $750,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the this information, use the following data in determining the acceptability in this situation:  Income fromNet CashYearOperationsFlow1$37,500 $187,500237,500   187,500337,500   187,500437,500   187,500537,500   187,500    

The cash payback period for this investment is

 3 years. 5 years. 20 years. 4 years.   Question 981 points  Save   All of the following are factors that may complicate capital investment analysis EXCEPT the leasing alternative. changes in price levels. sunk cost. the federal income tax.   Question 991 points  Save   The primary advantages of the average rate of return method are its ease of computation and the fact that it emphasizes the amount of income earned over the life of the proposal. there is less possibility of loss from changes in economic conditions and obsolescence when the commitment is short-term. it is especially useful to managers whose primary concern is liquidity. rankings of proposals are necessary.   Question 1001 points  Save   Using the following partial table of present value of $1 at compound interest, determine the present value of $20,000 to be received four years hence, with earnings at the rate of 10% a year. Year6%10%12%1.943.909.8932.890.826.7973.840.751.7124.792.683.636     $13,660 $12,720 $15,840 $10,400