Which of the following costs can be ignored when making a decision?
Opportunity costs.
Differential costs.
Sunk costs.
Relevant costs.
All future costs.
Which of the following best defines the concept of a relevant cost?
A future cost that differs among alternatives.
A past cost that differs among alternatives.
A cost that is based on past experience.
A future cost that is the same among alternatives.
A past cost that is the same among alternatives.
The term “opportunity cost” is best defined as:
the amount of money paid for an item, taking possible discounts into account.
the benefit associated with a rejected alternative when making a choice.
an irrelevant decision factor.
the amount of money paid for an item, taking inflation into account.
the amount of money paid for an item.
Which of the following represents the cost-plus pricing formula?
Price = cost + (markup percentage * cost).
Price = cost + markup percentage.
Price = cost + markup percentage.
Price = cost * markup percentage.
Price = cost + (markup percentage + cost).
If the volume sold reacts strongly to changes in price, demand:
has no elasticity.
has negative elasticity.
is inelastic.
is elastic.
is unrealistic.
n a net-present-value analysis, the discount rate is often called the:
payback rate.
hurdle rate.
minimal value.
net unit rate.
objective rate of return.
The net-present-value method assumes that project funds are reinvested at the:
hurdle rate.
rate of return earned on the project.
cost of debt capital.
cost of equity capital.
internal rate of return.
The following data pertain to Lemon Enterprises:
Variable manufacturing cost: $70
Variable selling and administrative cost: 20
Applied fixed manufacturing cost: 40
Allocated fixed selling and administrative cost: 15
What price will the company charge if the firm uses cost-plus pricing based on variable manufacturing cost and a markup percentage of 110%?
$84.
$147.
$210.
$231.
Some other amount.
The following costs relate to Southside Company: Variable manufacturing cost, $30; variable selling and administrative cost, $8; applied fixed manufacturing overhead, $15; and allocated fixed selling and administrative cost, $4. If Southside uses absorption manufacturing-cost pricing formulas, the company's markup percentage would be computed on the basis of:
$30.
$38.
$45.
$57.
some other amount.
Occular is studying whether to drop a product because of ongoing losses. Costs that would be relevant in this situation would include variable manufacturing costs as well as:
factory depreciation.
avoidable fixed costs.
unavoidable fixed costs.
allocated corporate administrative costs.
general corporate advertising.
A company that is using the internal rate of return (IRR) to evaluate projects should accept a project if the IRR:
is greater than the project's net present value.
equates the present value of the project's cash inflows with the present value of the project's cash outflows.
is greater than zero.
is greater than the hurdle rate.
is less than the firm's cost of investment capital.
S'Round Sound, Inc. reported the following results from the sale of 24,000 units of IT-54:
Sales $528,000
Variable manufacturing costs 288,000
Fixed manufacturing costs 120,000
Variable selling costs 52,800
Fixed administrative costs 35,200
Rhythm Company has offered to purchase 3,000 IT-54s at $16 each. Sound has available capacity, and the president is in favor of accepting the order. She feels it would be profitable because no variable selling costs will be incurred. The plant manager is opposed because the “full cost” of production is $17. Which of the following correctly notes the change in income if the special order is accepted?
$3,000 decrease.
$3,000 increase.
$12,000 decrease.
$12,000 increase.
None of these.
From an economic perspective, a company's profit-maximizing quantity is found where:
the total cost curve intersects with the marginal cost curve.
the total revenue curve intersects with the average revenue curve.
the marginal revenue curve intersects with the demand curve.
the marginal revenue curve intersects with the marginal cost curve.
the marginal cost curve intersects with the demand curve.
Algeria Transport Company has average invested capital of $800,000 and a target return on investment of 15%. The total cost per unit is $20 based on a volume level of 25,000 units. Albany's markup percentage on total cost is:
9.375%.
24.0%.
47.5%.
62.5%.
some other amount.
Which of the following is the proper calculation of a company's depreciation tax shield?
Depreciation / tax rate.
Depreciation deduction + income taxes.
Depreciation * tax rate.
Depreciation / (1 – tax rate).
Depreciation * (1 – tax rate).
Capital budgeting tends to focus primarily on:
revenues.
costs.
cost centers.
programs and projects.
allocation tools.
Jenkins plans to generate $650,000 of sales revenue if a capital project is implemented. Assuming a 30% tax rate, the sales revenue should be reflected in the analysis by a:
$195,000 inflow.
$195,000 outflow.
$455,000 inflow.
$455,000 outflow.
$650,000 inflow.
Susan is contemplating a job offer with an advertising agency where she will make $54,000 in her first year of employment. Alternatively, Susan can begin to work in her father's business where she will earn an annual salary of $38,000. If Susan decides to work with her father, the opportunity cost would be:
$0.
$38,000.
$54,000.
$92,000.
irrelevant in deciding which job offer to accept.
onsider the following statements about the total-cost and the incremental-cost approaches of investment evaluation:
I. Both approaches will yield the same conclusions.
II. Choosing between these approaches is a matter of personal preference.
III. The incremental approach focuses on cost differences between alternatives.
Which of the above statements is (are) true?
I only.
II only.
III only.
II and III.
I, II, and III.
