Question

The Twisty Tie Dye Co. produces a single product; a plush poncho made of Italian cashmere. The company has provided the following data for its most recent year of operations.

Number of Units Produced	10,000
Direct labor	$55 per unit
Direct materials	$60 per unit
Variable manufacturing overhead	$5 per unit
Variable selling and administrative expense	$10 per unit
Fixed manufacturing overhead (total cost)	$120,000
Fixed selling and administrative expense (total cost)	$60,000

       The unit cost, under both absorption costing and variable costing, would be

	1) $132 per unit under variable costing and $120 per unit under absorption costing.
	2) $120 per unit under variable costing and $132 per unit under absorption costing.
	3) $120 per unit under variable costing and $142 per unit under absorption costing.
	4) $130 per unit under variable costing and $142 per unit under absorption costing.

The Petty Co. is considering the following three investment projects.

Use the following information to answer the question:

	American Girl	Free Falling	Breakdown
Present value of cash inflows	$23,200	$58,200	$78,000
Investment Required	$20,000	$48,000	$76,000

Regarding the Net Present Value, which statement is true?

	1) Based on NPV, the Breakdown Project ranks highest.
	2) Based on NPV, the American Girl Project ranks lowest.
	3) Based on NPV, the Free Falling Project ranks the highest.
	4) None of the above.

Use the following information to answer the question:

	American Girl	Free Falling	Breakdown
Present value of cash inflows	$23,200	$58,200	$78,000
Investment Required	$20,000	$48,000	$76,000

Regarding the Profitability Index (PI), which statement is true?

	1) American Girl Project’s PI is .16.
	2) American Girl Project’s PI is .862.
	3) American Girl Project’s PI is 1.16.
	4) None of the above.

The Pearl Jam Corporation has two divisions: the Eddie Division and the Vedder Division. The Eddie Division has sales of $230,000, variable expenses of $131,100, and traceable fixed expenses of $63,300. The Vedder Division has sales of $540,000, variable expenses of $307,800, and traceable fixed expenses of $120,700. The total amount of common fixed expenses not traceable to the individual divisions is $119,200.

The company’s net operating income is:

	1) $147,100.
	2) $331,100.
	3) $211,900.
	4) $27,900.

Answer 1

Question 1

2) $120 per unit under variable costing and $132 per unit under absorption costing.

	Absorbtion Cost	Variable Cost
Direct Material	60	60
Direct Labour	55	55
Variable Manufacturing Overheads	5	5
Fixed manufacturing cost $120000/10000)	12	NA
Total cost	132	120

Question 2

3)Based on NPV, the Free Falling Project ranks the highest.

	American girl	free falling	Breakdown
Present value of cash inflows	23200	58200	78000
Investment Required	20000	48000	76000
NPV	3200	10200	2000
Rank	2	1	3

Question 3

3) American girl's Project PI is 1.16

Profitibility Index

PI= Present value of cash inflows/Investment Required=$23,200/$20,000=1.16

Question 4

(4) $27,900

Particulars	Eddie	Vedder	Company(Total)
Sales	230000	540000	770000
Less:Variable cost	131100	307800	438900
Contribution	98900	232200	331100
Less:Tracable Fixed cost	63300	120700	184000
Less:Common Fixed cost			119200
Net Income			27900

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