# How much was the material quantity variance?

A company uses a single raw material in its production process. The standard price for a unit of material is \$2. During the month the company purchased and used 600 units of this material at a price of \$2.25 per unit. The standard quantity required per finished product is 2 units, and during the month the company produced 310 finished units. How much was the material quantity variance?

A. \$40 favorable

B. \$40 unfavorable

C. \$45 favorable

D. \$45 unfavorable

Part 2 of 2 – 37.5/ 50.0 Points

Question 21 of 40 2.5/ 2.5 Points

Siesta Manufacturing has asked you to evaluate a capital investment project. The project will require an initial investment of \$88,000. The life of the investment is 7 years with a residual value of \$4,000. If the project produces net annual cash inflows of \$16,000, what is the accounting rate of return?

A. 3.90%

B. 4.55%

C. 550%

D. 18.18%

Question 22 of 40 0.0/ 2.5 Points

The Warren Company is considering investing in two alternative projects.

Project 1 Project 2

Investment \$400,000 \$250,000

Useful life (years) 5 6

Estimated annual net cash inflows for useful life \$100,000 \$45,000

Residual value \$25,000 \$15,000

Depreciation method Straight-line Straight-line

Required rate of return 12% 8%

What is the accounting rate of return for Project 2?

A. 33.67%

B. 3%

C. 18%

D. 2.33%

Question 23 of 40 2.5/ 2.5 Points

Mantua Motors is evaluating a capital investment opportunity. This project would require an initial investment of \$38,000 to purchase equipment. The equipment will have a residual value at the end of its life of \$3,000. The useful life of the equipment is 5 years. The new project is expected to generate additional net cash inflows of \$12,000 per year for each of the 5 years. Mantua Motors’ required rate of return is 14%. The net present value of this project is closest to:

A. (\$1,994).

B. \$4,753.

C. \$3,196.

D. \$28,386.

Question 24 of 40 2.5/ 2.5 Points

Mulheim Corporation is deciding whether to automate one phase of its production process. The equipment has a 6-year life and will cost \$410,000. Projected net cash inflows from the equipment are as follows.

Year 1 \$120,000

Year 2 \$100,000

Year 3 \$110,000

Year 4 \$100,000

Year 5 \$95,000

Year 6 \$90,000

Mulheim Corporation’s hurdle rate is 12%. Assume the residual value is zero.

What is the net present value of the equipment?

A. \$(18,275)

B. \$3,046

C. \$20,000

D. \$18,275

Question 25 of 40 2.5/ 2.5 Points

The internal rate of return is:

A. the interest rate at which the net present value of the investment equals the cost of the investment.

B. the interest rate at which the net present value of the investment exceeds the company’s desired rate of return.

C. equal to the accounting rate of return.

D. None of the above

Question 26 of 40 2.5/ 2.5 Points

Which of the following decision rules is a correct statement?

A. If the net present value is positive, do not invest in the capital asset.

B. If the internal rate of return is less than the required rate of return, invest in the asset.

C. Investments with longer payback periods are more desirable, all else being equal.

D. If the net present value is positive, invest in the capital asset.

Question 27 of 40 2.5/ 2.5 Points

Eagle Corporation is considering the purchase of a new machine. The machine costs \$550,000 and will generate an annual net cash inflow of \$100,000. What is the payback period?

A. 4 years and 6 months

B. 5 years

C. 5 years and 6 months

D. 6 years and 1 month

Question 28 of 40 2.5/ 2.5 Points

Which of the following capital decision methods uses accrual accounting, rather than net cash flows, as a basis for calculations?

A. Payback method

B. Internal rate of return

C. Net present value

D. Accounting rate of return

Question 29 of 40 0.0/ 2.5 Points

Smith & Cramer Computer Repair is considering an investment in computer and network equipment costing \$254,000. This equipment would allow them to offer new programming services to clients. The equipment will be depreciated on the straight-line basis over an 8-year period with an estimated residual value of \$60,000. Using the accounting rate of return model, what is the minimum average annual operating income that must be generated from this investment in order to achieve an 11% accounting rate of return?

A. \$6,600

B. \$21,340

C. \$31,750

D. \$27,940

Question 30 of 40 0.0/ 2.5 Points

You win the lottery and must decide how to take the payout. Use an 8% discount rate. What is the present value of \$15,000 a year received at the end of each of the next 6 years?

A. \$9,450

B. \$90,000

C. \$74,893

D. \$69,345

Question 31 of 40 0.0/ 2.5 Points

What is an attribute of the internal rate of return?

A. It is the interest rate that makes the NPV of the investment equal to zero.

B. It is the interest rate that makes the cost of the investment equal to the present value of the investment’s net cash inflows.

C. It is used in the capital rationing process.

D. All of the above are attributes of the internal rate of return.

Question 32 of 40 0.0/ 2.5 Points

Assuming an interest rate of 6%, the present value of \$22,000 to be received 9 years from now would be closest to:

A. \$16,434.

B. \$13,024.

C. \$37,162.

D. \$35,068.

Question 33 of 40 2.5/ 2.5 Points

Which of the following areas does NOT make significant use of time value of money concepts?

A. Capital investment analysis

B. Lending and borrowing

C. Personal finance planning

D. Marketing research

Question 34 of 40 2.5/ 2.5 Points

The term ________ is best described as “a stream of equal periodic payments.”

A. “time value of money”

B. “capital budgeting”

C. “annuity”

D. “payback period”

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Question 35 of 40 2.5/ 2.5 Points

Which of the following is NOT a factor when considering the time value of money?

A. The interest rate

B. The principal amount

C. The payback period

D. The number of periods

Question 36 of 40 2.5/ 2.5 Points

The following are all methods of analyzing capital investments EXCEPT:

A. payback period.

B. regression analysis.

C. net present value (NPV).

D. accounting rate of return (ARR).

Question 37 of 40 2.5/ 2.5 Points

A manager wants to know which investment decision will affect the bottom line of the financial statements according to Generally Accepted Accounting Principles. Which capital budgeting method would he choose?

A. Payback method

B. Accounting rate of return method

C. Net present value method

D. Profitability index

Question 38 of 40 2.5/ 2.5 Points

Hincapie Manufacturing is evaluating investing in a new metal stamping machine costing \$30,924. Hincapie estimates that it will realize \$12,000 in annual cash inflows for each year of the machine’s 3-year useful life. The internal rate of return (IRR) for the machine is approximately:

A. 8%.

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