Posted: April 13th, 2016

The economic order quantity is the order quantity that results in???

13. Perry Products is thinking of expanding their product line. Their current income statement is as follows:
Revenues $600,000
Cost of Goods Sold:
Direct Materials $250,000
Direct Labor 100,000
Overhead 80,000 430,000
Gross Profit 170,000
Selling and Administrative 70,000
Operating Income $100,000

The cost of the new product is $95 per unit made up of $50 of direct materials, $35 of direct labor and $10 of overhead per unit. What is the bid price assuming Perry utilizes a mark-up on direct materials?
a. $70
b. $133
c. $119
d. $19.77

14. The following information pertains to Stark Corporation:

Beginning inventory 0 units
Ending inventory 5,000 units
Direct labor per unit $20
Direct materials per unit 16
Variable overhead per unit 4
Fixed overhead per unit 10
Variable selling costs per unit 12
Fixed selling costs per unit 16

What is the value of ending inventory using the variable costing method?
a. $310,000
b. $250,000
c. $200,000
d. $390,000

15. Toshi Company incurred the following costs in manufacturing desk calculators:

Direct materials $14
Indirect materials (variable) 4
Direct labor 8
Indirect labor (variable) 6
Other variable factory overhead 10
Fixed factory overhead 28
Variable selling expenses 20
Fixed selling expenses 14

During the period, the company produced and sold 1,000 units.

What is the inventory cost per unit using variable costing?
a. $52
b. $62
c. $42
d. $70

16. Meulo Company is considering the purchase of production equipment that costs $800,000. The equipment is expected to generate an annual cash flow of $250,000 and have a useful life of five years with no salvage value. The firm’s cost of capital is 12 percent. The company uses the straight-line method of depreciation with no mid-year convention. There are no income taxes.

The payback period in years for the project is
a. 2.90 years.
b. 3.20 years.
c. 3.25 years.
d. 4.20 years.

17. Dunkin, Inc., is considering the purchase of production equipment that costs $300,000. The equipment is expected to generate an annual cash flow of $100,000 and have a useful life of five years with no salvage value. The firm’s cost of capital is 14 percent. The company uses the straight-line method of depreciation with no mid-year convention. Ignore income taxes.

Payback for the project is
a. 5.00 years.
b. 3.50 years.
c. 3.00 years.
d. 2.38 years.

18. Hunziker Company is considering the purchase of wood cutting equipment. Data on the equipment are as follows:

Original investment $45,000
Net annual cash inflow $18,000
Expected economic life in years 5
Salvage value at the end of five years $4,500

The company uses the straight-line method of depreciation with no mid-year convention.

What is the accounting rate of return on original investment rounded to the nearest percent, assuming no taxes are paid?
a. 40%
b. 73%
c. 22%
d. 24%

19. Holloway Company is considering the purchase of a new machine for $40,000. The machine would generate an annual cash flow before depreciation and taxes of $15,647 for four years. At the end of four years, the machine would have no salvage value. The company’s cost of capital is 12 percent. The company uses straight-line depreciation with no mid-year convention and has a 40 percent tax rate.

What is the accounting rate of return on the original investment in the machine approximated to two decimal points?
a. 14.12%
b. 8.47%
c. 39.12%
d. 16.92%

20. Which of the following methods uses income instead of cash flows?
a. payback
b. accounting rate of return
c. internal rate of return
d. net present value

21. Waterhouse Company decreased the size of inventory order quantities that had previously been determined using the EOQ model. If demand remains the same, what is the impact on the number of orders made during the year?
a. increase
b. no change
c. decrease
d. cannot be determined

22. Waterhouse Company decreased the size of inventory order quantities that had previously been determined using the EOQ model. What is the impact on the total amount of annual carrying and ordering costs?
a. increase
b. no change
c. decrease
d. cannot be determined

23. The economic order quantity is the order quantity that results in
a. the minimum total annual inventory costs.
b. the maximum total annual inventory costs.
c. no inventory shortages.
d. minimum ordering costs.

24. Strategic objectives of JIT include
a. increasing profits.
b. improving a firm’s competitive position.
c. increasing inventory.
d. both a and b.

25. The objectives of JIT are achieved by
a. controlling costs.
b. improving delivery performance.
c. improving quality.
d. all of these.

SECTION II

1. The operations of Grant Corporation are divided into the Fix Division and the Roach Division. Projections for the next year are as follows: