Question 11 (2.5 points) A company uses the net present value methodology in mak

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Question 11 (2.5 points)

A company uses the net present value methodology in making capital expenditure decisions. In making a decision where they have to choose among two pieces of equipment, which of the following pieces of information will be considered irrelevant

Question 11 options:

Initial cost of each machine

Estimated life of each machine

Salvage value of each machine

Cash flow generated by each machine during the estimated life of the machine

All of the above are relevant

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Question 12 (2.5 points)

Baton Rouge Company is considering purchasing new equipment which will cost $950,000. This equipment is expected to have a useful life of 15 years, have a salvage value of $50,000 and is expected to have an annual net cash inflow (before taxes) of $80,000. Assume the company is in the 34% tax bracket.

What is Baton Rouge's annual net cash inflow (after taxes)?

Question 12 options:

$13,200

$52,800

$73,200

$112,800

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Question 13 (2.5 points)

Machine A

Machine B

Cost

$600,000

$600,000

Life

5 yrs

5 yrs

Net Cash Inflow:

Yr 1

$100,000

$500,000

Yr 2

$200,000

$400,000

Yr 3

$300,000

$300,000

Yr 4

$400,000

$200,000

Yr 5

$500,000

$100,000

Co. X uses the net present value method to evaluate capital expenditures. Which of the following two machines has the higher net present value? Question 13 options:

Machine B

Machine A

They are the same

Cannot be determined from the information provided

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Question 14 (2.5 points)

Product

Cases

Selling Price/Case

Additional Costs/Case

Catsup

100,000

$10

$2

Tomato Juice

150,000

$8

$1

Canned Tomatoes

250,000

$12

$3

The joint cost allocated to Canned Tomatoes (using the net realizable value method) is (round to the closest $) Question 14 options:

$107,562

$210,000

$230,496

$81,942

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Question 15 (2.5 points)

Product

Cases

Selling Price/Case

Additional Costs/Case

Catsup

100,000

$10

$2

Tomato Juice

150,000

$8

$1

Canned Tomatoes

250,000

$12

$3

Red Sauce Canning Company is considering an option to further refine Catsup. By incurring an additional cost of $60,000, they will be able to increase their selling price of Catsup to $11.20 per case. Determine the incremental advantage (disadvantage) of this option? (round to the closest $) Question 15 options:

($60,000)

$60,000

$260,000

($260,000)

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Question 16 (2.5 points)

Product

Cases

Selling Price/Case

Additional Costs/Case

Catsup

100,000

$10

$2

Tomato Juice

150,000

$8

$1

Canned Tomatoes

250,000

$12

$3

If the company has a philosophy of marking up their products 20% over cost, the selling price per case of Tomato Juice should be (using the net realizable value method) (round to 2 decimal places) Question 16 options:

$1.00

$7.00

$0.86

$2.06

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Question 17 (2.5 points)

Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During November, they incurred joint processing costs of $420,000. Production and sales value information for November are as follows:

Product

Cases

Selling Price/Case

Additional Costs/Case

Catsup

100,000

$10

$2

Tomato Juice

150,000

$8

$1

Canned Tomatoes

250,000

$12

$3

The unit cost per case of Canned Tomatoes (using the physical volume method) is (round to 2 decimal places)

Question 17 options:

$1.84

$3.84

$2.84

$0.84

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Question 18 (2.5 points)

A cost that is incurred between the split-off point and the point of sale is known as a:

Question 18 options:

Unit cost

Split-off cost

Separable cost

Joint cost

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Question 19 (2.5 points)

Company X uses a joint processing system for it's 2 products Y & Z. As a result of using the physical volume method of joint cost allocation instead of the net realizable value method, they have overstated the unit cost for product Z and understated the unit cost for product Y. If Company X prepares separate financial statements for each of the 2 products, which of the following statements is true

Question 19 options:

Gross Margin for product Z will be overstated

Net Income for product Y will be overstated

COGS for product Z will be overstated

There will be no effect on the Income Statements for either Y or Z

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Question 20 (2.5 points)

Product

Gallons

Selling Price (as is)

Additional Processing Costs

Selling price (after processing)

Great

30,000

$8/gallon

$50,000

$10/gallon

Grand

20,000

$6/gallon

$80,000

$9.50/gallon

Which of the following products should Zell Company process further? Question 20 options:

Grand only

Great only

neither Great nor Grand

both Great and Grand

Initial cost of each machine

Estimated life of each machine

Salvage value of each machine

Cash flow generated by each machine during the estimated life of the machine

All of the above are relevant

Explanation / Answer

Ans-

Question 11

All of the above all relevant.

Question 12

What is Baton Rouge's annual net cash inflow (after taxes)

Depreciation-

Cost=950,000

Scrap=50,000

Life=15 years

Depricaition=Cost-Scra/life

=60,000

Cash flow before tax $                         80,000 Less-Taxes $                           6,800 Cash flow after tax $                         73,200

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