Fall 2006 Exam 3 - Managerial Accounting Acct 2301 – Fall...

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Managerial Accounting Acct 2301 – Fall 2006 Exam 3 – Version I NOTE: Rounding error within $5 is acceptable on all time-value-of-money problems. Name: 1. The Home Run batting cages chain has invested in ice cream stands for its various locations. The investment cost the company $100,000. The company expects to sell 10,000 ice cream servings per year. Variable materials, preparation and marketing costs are expected to be $0.50 per serving. Fixed costs are expected to be $3,000 per year. If the company wants an ROI of 12%, how much should they charge for each serving of ice cream? a. $2.00 b. $4.00 c. $1.25 d. $0.50 e. There is not enough information available. 2. Hoover Football Corporation desires a 10% ROI on all investment projects. The following information was available for the company in 2005: Sales $28,000 Operating Income $ 5,600 Turnover 1.0 What is the corporation’s ROI? 3. Peek Company started the accounting period with the following beginning balances in 2005: Raw material inventory $10,000 Work in process inventory $30,000 Finished goods inventory $20,000 During the year, the company purchased $50,000 of raw materials and ended the year with $20,000 in raw material inventory. Direct labor costs for the period were $80,000 and $10,000 of manufacturing overhead was applied to work in process. (There was no over or under applied overhead.) Ending work in process was $40,000 and ending finished goods sold $40,000. What was the amount of cost of goods manufactured for the year? (i.e. How much was transferred to finished goods?) 1
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4. An investment that costs $25,000 will produce annual cash flows of $5,000 for a period of 6 years. Further, the investment has an expected salvage value of $3,000. What is the net present value of the investment if the desired rate of return is 12%? 5. The management of Tarallo Industries obtained the following information about the performance of a major investment project. Revenues $200,000 Cost of Investment 300,000 Margin 24% Assuming Tarallo has a desired rate of return of 14%, the project’s residual income was a. $42,000 b. $28,000 c. $ 6,000 d. $72,000 e. None of the above
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