Exam 3 Flashcards
(36 cards)
Margin =
Margin = NOI/Sales
Turnover =
Turnover = Sales / Avg Operating Assets
Residual Income =
Residual Income = NOI - Minimum Required Return
Minimum Required Rate of Return =
Minimum Required Return / Avg Operating Assets
How do you setup a Make or Buy decision?
Variable Mfg Cost
Fixed Mfg Cost (can be eliminated)
Outside Purchase Price
Total Costs:
Difference:
CM per Setup =
CM per unit / # of setups
How to determine largest possible Total CM that can be realized in a period?
After finding CM per setup, take product that has largest CM and apply to below:
Max # Setups / Amount of Setups Required
= Amount Produced
X Cm Generated per unit
= Total CM
Residual Income =
NOI - (AOA x Minimum Required Rate of Return)
ROI =
Full Formula
Sales/AOA X NOI/Sales
ROI =
Short Formula)
Turnover X Margin
Internal Rate of Return IRR (Payback Period) =
Investment Required / Annual Net Cash Inflow
A relevant cost is
Select one:
a. the foregone benefit of choosing to do one thing instead of another.
b. a cost that differs across decision alternatives.
c. a cost that has already been incurred.
d. a cost that is the same regardless of the alternative the manager chooses.
B. A Cost that differs across decision alternatives
If a firm uses absorption costing, which of the following actions taken by management would increase gross profit even if sales do not increase?
Select one:
a. Decreasing production and using items from inventory for sales.
b. Increasing production and building up inventory.
c. Increasing fixed costs by investing in new production technology.
d. Increasing variable costs by purchasing higher-quality materials.
B. Increasing production and building up inventory
Accounting Rate of Return =
Net Income / Initial Investment
Simple Rate of Return =
?
Profit will be the same under variable costing as under full absorption costing whenever
Select one:
a. production is greater than sales.
b. production is the same as sales.
c. production is less than sales.
d. variable costing is chosen for external reporting purposes.
B. Production is the same as sales
In a special sales order decision, incremental fixed costs that will be incurred if the special order is accepted are considered to beSelect one:
a. opportunity costs.
b. irrelevant to the decision.
c. relevant to the decision.
d. sunk costs.
C. relevant to the decsion
Managers should consider all of the following when deciding whether to accept a special order, except
Select one:
a. available excess capacity.
b. the variable costs associated with the special order.
c. the effect of the order on regular sales.
d. fixed costs that will not be affected by the order.
D. Fixed costs that will not be affected by the order
Which would be a consideration for making special orders?
Select one:
a. Available capacity to fill the order
b. If price will cover incremental costs of filling the order
c. If the order will affect regular sales in the long run
d. All of these
D. All of theses.
Fixed costs that are allocated among all departments are known as
Select one:
a. direct fixed costs.
b. relevant fixed costs.
c. general fixed costs.
d. common fixed costs.
D. common fixed costs
All of the following are considerations for discontinuing a product or product line, except
Select one:
a. whether the product has a positive or negative contribution margin.
b. not having any free capacity.
c. if discontinuing the product or product line will affect sales of remaining products.
d. determining if direct fixed costs could be avoided if the product or product line is discontinued.
B. Not having any free capacity
The break-even point in unit sales is found by dividing total fixed expenses by:
Select one:
a. the contribution margin ratio.
b. the variable expenses per unit.
c. the sales price per unit.
d. the contribution margin per unit.
D. The contribution margin per unit
The manager of Hampton, Inc. is trying to decide whether to make or buy a component of the product it sells. Which of the following costs and benefits is not relevant to the decision?
Select one:
a. Direct labor cost involved in making the component
b. The purchase price of the component if it is bought
c. Variable manufacturing overhead involved in making the component
d. The selling price of the product
D. the selling price of the product
The payback method Select one: a. is a complex method of analysis. b. is infrequently used. c. incorporates the time value of money. d. ignores benefits and costs that occur after the project has paid for itself.
D. ignores benefits and costs that occur after the project has paid for itself.
