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ACC - AMIS 525 -Questions for Exam 3




Question;AMIS 525Sample Questions for Exam 3This set of 13 questions, taken from prior examinations, covers some topics inChapters 9, 15, 16, 21, 22, and 23.The purpose of sample questions is to acquaint you with the style andsubstance of typical exam questions over this material.The exam will consist of ?multiple choice" type questions, long problems andshort problems. Both calculation type questions and concept type questions,without computations required, will be used.Please be aware that:1. sample questions are only one of many resources available to prepare for testingevents ? reading textbook chapters and working through chapter examples, studyingthe end-of-chapter review problem and accompanying solution, and reviewing assignedhomework items and the published solutions may be more powerful methods toincrease your understanding of the topics covered in the course.2. the exam questions used this quarter will be similar but different from these examplequestions ? understanding the main concepts in each chapter is critical to success on thetesting events, remembering a sample question may be of some help but the format of aquestion on the same topic often differs rendering memory a distant second choice tounderstanding.Exam #3Practice QuestionsPage 1Question 1WRL Company operates a snack food center at the Hartsfield Airport. On January 1, 2003,RL purchased a special cookie-cutting machine, which has been used for three years. It isJanuary 1, 2006 and WRL is considering whether it should purchase a new, more-efficient cookie-cutting machine. WRL has two options: (1) continue using the old machine or (2) sell theold machine and purchase a new machine. The seller of the new machine isn?t offering a tradein. The following information has been obtained:OldNewMachineMachineInitial Purchase cost of machines$80,000$120,000Useful life from acquisition date (years)74Terminal disposal value at the end of useful life onDec. 31, 2009, assumed for depreciation purposes$10,000$20,000Expected annual cash operating costs:Variable cost per cookie$0.20$0.14Total fixed costs$15,000$14,000Depreciation method for tax purposesStraight line Straight lineEstimated disposal value of machines:January 1, 2006$40,000$120,000December 31, 2009$7,000$20,000Expected number of cookies made and sold eachyear300,000300,000WRL is subject to a 40% income tax rate. Assume that any gain or loss on the sale of machinesis treated as an ordinary tax item and will affect the taxes paid by WRL in the year in which itoccurs. WRL?s after-tax required rate of return is 16%. Assume all cash flows occur at year-endexcept for initial investment amounts.1. You have been asked whether WRL should buy the new machine. To help in youranalysis, calculate the following:a. One-time after-tax cash effect of disposing of the old machineb. Annual recurring after-tax cash operating savings from using the new machine(variable and fixed)c. Cash tax savings due to the differences in annual depreciation of the old machineand the new machined. Difference in after-tax cash flow from terminal value disposal of new machineand old machine.2. Use your calculations in requirement 1 and the net present value method to determine whetherWRL should use the old machine or acquire the new machine.Exam #3Practice QuestionsPage 2Question 2Instant Foods produces two types of microwavable products- beef-flavored ramen and shrimpflavored ramen. The two products share common inputs such as noodles and spices. Theproduction of ramen results in a waste product referred to as stock, which Instant dumps atnegligible costs at a local drainage area. In June 2009, the following data were reported for theproduction and sales of beef-flavored and shrimp-flavored ramen.Joints CostsJoint costs (costs of noodles, spices and otherinputs and processing to splitoff points)$ 240,000Beef ShrimpRamen Ramen0010,000 20,00010,000 20,000$10$15Beginning inventory (tons)Production (tons)Sales (tons)Selling price per tonDue to the popularity of its microwavable products, Instant decides to add a new line ofproducts that targets dieters. These new products are produced by adding a special ingredient todilute the original ramen and are to be sold under the names Special B and Special S,respectively. The following is the monthly data for all the productsJoints CostsJoint costs (costs of noodles, spices and otherinputs and processing to splitoff points)$ 240,000Separable costs of processing 10,000 tons ofBeef Ramen into 12,000 tons of Special B$48,000Separable costs of processing 20,000 tons ofShrimp Ramen into 24,000 tons of Special SBeginning inventory (tons)Production (tons)Transfer to further processing (tons)Sales (tons)Selling price per tonExam #3Special B Special S$168,000BeefRamen010,00010,000$10Practice QuestionsShrimpRamen Special B Special S020,00012,00024,00020,00012,00024,000$15$18$25Page 3RequiredCalculate Instant?s gross-margin percentage for Special B and Special S when jointcosts are allocated using the following:a. Sales value added at splitoff methodb. Net realizable value methodProblem 3Division B has asked Division A of the same company to supply it with 4,000 units of part K932this year to use in one of it?s products. Division B has received a bid from an outside supplierfor the parts at a price of $31.00 per unit. Division A has the capacity to produce 10,000 units ofpart K932 per year. Division A expects to sell 8,000 units of part K932 to outside customers thisyear at a price of $36.00 per unit. To fill the order from Division B, Division A would have tocut back its sales to outside customers. Division A produces part K932 at a variable cost of$18.00 per unit. In addition, the cost of packing and shipping the parts for outside customers is$3.00 per unit. These packing and shipping costs would not have to be incurred on sales of theparts to Division B.Required:1. What is the range of transfer prices within which both the Divisions' profits would increaseas a result of agreeing to the transfer of 4,000 parts this year from Division A to DivisionB?2. How much would profits change this year for the overall company if this transfer tookplace? Show all calculations.Exam #3Practice QuestionsPage 4Short Problem Type:Question 4Ignore income taxes in this problem.Jarvey Company is studying a project that would have a ten year life and would require a 450,000 investment in equipment that has no salvage value. The project would provide netincome each year as follows for the life of the project.SalesLess cash variable expensesContribution marginLess fixed expenses:Fixed cash expensesDepreciation expensesNet Income$500,000200,000300,000$150,00045,000195,000$105,000The company?s required rate of return is 12%. What is the payback period for this project?Answer: __________Question 5Waldorf Company has two sources of funds: long-term debt with a market and book value of $10million issued at an interest rate of 12%, and equity capital that has a market value of $8million (book value of $4 million). Waldorf Company has profit centers in the followinglocations with the following operating incomes, total assets, and current liabilities. The cost ofequity capital is 12%, while the tax rate is 25%.OperatingIncome$ 960,000$1,200,000$2,040,000St. LouisCedar RapidsWichitaAssets$ 4,000,000$ 8,000,000$12,000,000CurrentLiabilities$ 200,000$ 600,000$1,200,000What is the EVA for St. Louis?Answer: $____________Question 6Flint began business at the start of the current year. The company planned to produce 25,000units, and actual production conformed to expectations. Sales totaled 20,000 units at $27Exam #3Practice QuestionsPage 5each. Costs incurred were:Fixed manufacturing overheadFixed selling and administrative costVariable manufacturing cost per unitVariable selling and administrative cost per unit$150,000100,00071What would the company's variable-costing income be?Answer: $__________Question 7Extron Division reported a residual income of $200,000 for the year just ended. The divisionhad $8,000,000 of average operating assets and $1,000,000 of operating income. Basedon this information, what was the minimum required rate of return?Answer: ____________Multiple Choice Type:Question 8Joy Company reported $65,000 of net income for the year by using absorption costing. Thecompany had no beginning inventory, planned and actual production of 20,000 units, andsales of 18,000 units. Variable manufacturing costs were $20 per unit, and total budgetedfixed manufacturing overhead was $100,000. If there were no variances, net income undervariable costing would be:A.B.C.D.E.$15,000$55,000$65,000$75,000.$115,000Question 9The Florida Division of McKenna Company makes and sells batteries that can either be sold tooutside customers or transferred to the Alabama Division of McKenna Company. Thefollowing data are available from last month:Exam #3Practice QuestionsPage 6Florida Division:Selling price per battery to outside customers............................Variable cost per battery when sold to outside customers..........Capacity in batteries...................................................................$50$3515,000Alabama Division:Number of batteries needed per month.......................................Price per battery paid to an outside supplier...............................5,000$47If Florida Division sells the batteries to Alabama Division, Florida Division can avoid $2 perbattery in sales commissions.Suppose that Florida Division sells 11,500 batteries each month to outside customers. Accordingto the formula in the text, what is the lowest acceptable transfer price from the viewpoint of theselling division?A.B.C.D.E.$47.00$43.50$37.50$34.73Some other amount.Question 10Lido manufactures A and B from a joint process (cost = $80,000). Five thousand pounds of Acan be sold at split-off for $20 per pound or processed further at an additional cost of$20,000 and then sold for $25. Ten thousand pounds of B can be sold at split-off for $15per pound or processed further at an additional cost of $20,000 and later sold for $16. IfLido decides to process B beyond the split-off point, operating income will:A.B.C.D.E.increase by $10,000.increase by $20,000.decrease by $10,000.decrease by $20,000.decrease by $58,000.Question 11Sugarland Company is studying a capital project that will produce $500,000 of added salesrevenue, $300,000 of additional cash operating expenses, and $40,000 of depreciation (allon an annual basis). Assuming a 30% income tax rate, the company's after-tax cashannual inflow (outflow) is:A.B.C.D.E.$70,000.$128,000.$140,000.$152,000.some other amount.Exam #3Practice QuestionsPage 7Answer questions 12 and 13 using the information below:Hugo, owner of Automated Fabric, Inc., is interested in using the reciprocal allocation method.The following data from operations were collected for analysis:Budgeted manufacturing overhead costs:Service departments:MaintenancePersonnel$300,000$ 160,000Production departments:WeavingColorizing$650,000$350,000Services furnished:By Maintenance (budgeted labor-hours):to Personnel1,000to Weaving7,000to Colorizing4,000By Personnel (budgeted number of employees serviced):Plant Maintenance10Weaving30Colorizing20Question 12What is the complete reciprocated cost of the Maintenance Department?A) $331,267B) $326,667C) $300,000D) $0Question 13What is the total indirect cost of the Colorizing Department after allocation?A) $937,042B) $350,000C) $522,958D) $503,333


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