Question

1.)

A company is considering two projects.

  Project A Project B

Initial investment $300,000 $300,000

Cash inflow Year 1 $60,000 $90,000

Cash inflow Year 2 $60,000 $80,000

Cash inflow Year 3 $60,000 $80,000

Cash inflow Year 4 $60,000 $50,000

Cash inflow Year 5 $60,000 $70,000

What is the payback period for Project B?

Select one:

a. 2 years

b. 5 years

c. 3.5 years

d. 4 years

e. 3 years

2.)

Ace Inc. produces custom widgets. The cost structure for each widget it manufactures is as follows:

Direct materials $ 4.00 per unit

Direct labor $ 6.00 per unit

Variable manufacturing overhead $ 2.00 per unit

Allocated fixed manufacturing overhead $10.00 per unit (based on 10,000 units)

Beta Corp. offers to sell 10,000 widgets to Ace for $16.00 per unit. The widgets would be of equal or better quality and Beta can deliver 10,000 units with no problem. If Ace accepts the offer, none of its fixed costs will be avoidable. If Ace accepts the offer and buys 10,000 widgets from Beta:

Select one:

a. Ace will save $60,000.

b. Ace will spend $60,000 more.

c. Ace will spend $40,000 more.

d. Ace will save $40,000

3.)

Atlanta Airlines incurs the following costs for a regularly scheduled flight from Atlanta to San Francisco. Below is the per unit data when 100 passengers fly:

Per Passenger

Meals and drinks $ 3.00

Cost of jet fuel $125.00

Crew costs $ 25.00

Depreciation of aircraft    $ 10.00

Maintenance costs $ 4.00

Total costs $167.00

Meals and drinks are variable costs that vary directly with the number of passengers. All the other costs are fixed. The airplane can seat 150 passengers although only 100 passengers are booked on tomorrow’s flight. A local travel club has offered Atlanta Airlines $100 per seat for 20 seats on the next flight. If Atlanta Airlines accepts the offer, what will be the short-term impact on income?

Select one:

a. Income will decrease by $1,340

b. Income will decrease by $1,140

c. Income will decrease by $2,560

d. Income will decrease by $3,340

e. Income will increase by $1,940

4.)

Wolfpack Products has two departments, Red and White. The Income Statement for Wolfpack is given below:

    Red White Total

Sales $ 200,000    $300,000 $ 500,000

Variable cost 120,000 150,000 270,000

Fixed cost     100,000 100,000 200,000

Net income $ (20,000) $ 50,000 $ 30,000

Fixed costs are $200,000 per year and are currently allocated evenly between the two departments. The president of Wolfpack Products wants to discontinue the Red Department. None of the fixed costs allocated to the Red Department will be avoided if it is discontinued. If the Red Department is discontinued, what will be the impact on Wolfpack Product’s net income?

Select one:

a. net income will remain the same.

b. net income will increase by $20,000.

c. net income will decrease by $80,000.

d. net income will decrease by $50,000.

e. net income will decrease by $20,000.

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.