EXAM 3 PRACTICE

EXAM 3 PRACTICE - This is not a comprehensive list of...

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This is not a comprehensive list of notes!!!! -relevant cost: a cost that differs between alternatives -sunk costs are not relevant costs -when you have a limited supply of a resource (a constrained resource), choose the alternative that generates the most profit per unit of the constrained resource -amt. of cash flow(s) x present value factor = present value of cash flow(s) -if NPV is positive or equal to 0, then the project is acceptable b/c it exceeds the required rate of return -IRR is equal to the discount rate that provides a NPV of 0 -PV factor of IRR = Investment required / Net Annual Cash Flows -Payback Period = Investment Required / Net Annual Cash Flows -payback period ignores the time value of money!!! Here is some hypothetical data that illustrates how you should setup a NPV problem: Item Years Amt. of Cash Flows 15% Factor PV of Cash Flows Investment Now (100,000) 1.000 (100,000) Annual Inflows (1-5) 33,000 3.352 110,616 Salvage 5 8,000 0.497 3,976 Net Present Value 14,592 Note: When doing NPV problems, use this table as a guideline. Fill in as much of the table as possible and work to solve for the missing parts. -know definitions of cost, profit, investment centers (all are responsibility centers) -know difference between common and traceable costs…. . traceable costs would more likely disappear if the segment was removed (but not necessarily) ROI = Net Operating Income / Avg. Operating Assets Margin = Net Operating Income / Sales Turnover = Sales / Average Operating Assets Therefore………. . ROI = Margin x Turnover -Three ways to improve ROI – increase sales, reduce expenses, reduce assets Residual Income = Net Operating Income – Minimum required return on Investment MCE = Value added time / Manufacturing cycle time Note: Process time is the only value added time
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1. When there is a production constraint, a company should emphasize the products with: A) the highest unit contribution margins. B) the highest contribution margin ratios. C) the highest contribution margin per unit of the constrained resource. D) the highest contribution margins and contribution margin ratios. 2. The Kelso Company has two divisions--Eastern and Western. The divisions have the following revenues and expenses: Eastern Western Sales. .............................................................................................................. $450,000 $400,000 Variable expenses. ......................................................................................... 225,000 150,000 Traceable fixed expenses. .............................................................................. 130,000 105,000 Allocated common corporate expenses. ........................................................ 120,000
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This note was uploaded on 05/09/2008 for the course ACC 2304 taught by Professor Robinson during the Spring '08 term at Baylor.

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EXAM 3 PRACTICE - This is not a comprehensive list of...

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