FINAL FALL 2002 - Concordia University John Molso n School...

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Concordia University Comm 305/2 Fall 2002 John Molson School of Business Final Examination 2 Question 1 (19 marks) 1. Amazing.com's balance sheet reveals the following sources of financing: $2,000,000, 7-percent, long-term debt and $4,000,000 common stock. The operating income for last year was $600,000 after taxes. The company's marginal tax rate is 30 percent. The interest rate on long- term government bonds is 5 percent. During the past several years, the company's shareholders have received, on average, one percent above the government bond rate. The weighted average after-tax cost of capital for Amazing.com is: A) 4.43 percent B) 4.97 percent C) 5.63 percent D) none of the above 2. R a x C o m p a n y h a s d e v e l o p e d t h e f o l l o w i n g s t a n d a r d s f o r o n e o f t h e i r p r o d u c t s . D i r e c t m a t e r i a l s : 1 2 k g x $ 1 4 p e r k g D i r e c t l a b o u r : 3 h o u r s x $ 1 8 p e r h o u r V a r i a b l e m a n u f a c t u r i n g o v e r h e a d : 3 h o u r s x $ 8 p e r h o u r T h e f o l l o w i n g a c t i v i t y o c c u r r e d d u r i n g t h e m o n t h o f O c t o b e r . M a t e r i a l s p u r c h a s e d : 1 0 , 0 0 0 k g c o s t i n g $ 1 3 . 6 0 p e r k g M a t e r i a l s u s e d : 9 , 0 0 0 k g U n i t s p r o d u c e d : 8 0 0 u n i t s D i r e c t l a b o u r : 2 , 5 0 0 h o u r s a t $ 1 9 . 0 0 p e r h o u r A c t u a l v a r i a b l e m a n u f a c t u r i n g o v e r h e a d : $ 2 2 , 0 0 0 T h e c o m p a n y r e c o r d s m a t e r i a l s p r i c e v a r i a n c e s a t t h e t i m e o f p u r c h a s e . F i g u r e 1 Refer to Figure 1. Rax's direct materials usage variance would be: A) $8,400 unfavourable B) $8,400 favourable C) $5,600 unfavourable D) $5,600 favourable
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Concordia University Comm 305/2 Fall 2002 John Molson School of Business Final Examination 3 3. Armstrong Co. has 15,000 units in inventory that had a production cost of $3 per unit. These units cannot be sold through normal channels due to significant changes in technology. These units could be reworked at a total cost of $23,000 and sold for $28,000. Another alternative is to sell the units to a junk dealer for $8,500. The relevant cost for Armstrong to consider is: A) $45,000 of original production costs B) $23,000 for reworking the units C) $68,000 for reworking the units D) $28,000 for selling the units to a junk dealer 4. A company that maintains a raw materials inventory which is based on the following month’s production needs, will purchase less material than they use in a month where: A) current sales exceeds current production B) current production exceeds current sales C) the current month’s planned production exceeds the next month’s planned production D) the current month’s planned production is less than the next month’s planned production I n f o r m a t i o n a b o u t G a v e n C o m p a n y i s a s f o l l o w s : 1 9 9 7 1 9 9 8 O u t p u t 8 0 , 0 0 0 8 4 , 0 0 0 S e l l i n g p r i c e p e r u n i t $ 2 5 $ 2 5 I n p u t q u a n t
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FINAL FALL 2002 - Concordia University John Molso n School...

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