Mgmt_201_(Ganguly)_Midterm2_Practice_F05v1_soln -...

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INSTRUCTIONS (Please Read!) (1) Please fill in the required information (A) on the cover of this exam and (B) on the scantron, as indicated on the cover page! (2) In Section II, if you run out of time and cannot complete an item, leave a clear computation without actually computing the answer. You will get full credit. For example, if the answer is found as follows: $[(1000/2 + 300) * 1.50] = $1,200, then writing $[(1000/2 + 300) * 1.50] without computing the final answer will get you full credit. This policy will hold for any other quiz OR EXAM in this course but NOT for Section I (multiple choice questions) . (3) Some tables will be found on the last page of the exam. Please use all the digits as given in the table. You may NOT use any other tables of your own. (4) We will answer procedural questions during the quiz or exam, but no questions related to any problem-related confusion. If you are confused or have any doubts, make the most reasonable assumption you can, and write your assumption down for us to see. If the confusion seems legitimate, we will consider it in grading. (5) Please pace yourself. Do not obsess over any particular item with which you are having a problem. Please move on and come back to troublesome items later, if you can. Section I (Multiple Choice: 15 x 1 = 15 points) (Answer on scantron. ONLY scantron answers will be graded in this section.) 1. Henderson Manufacturing Inc. manufactures electric scooters. The company currently makes all of the electronic components for the scooter itself. When 6,000 motors are manufactured each year, the motor costs per unit are as follows: Direct Materials $3 Direct Labor 4 Variable overhead 5 Fixed overhead 8 Plymouth has offered to sell Henderson 6,000 motors for $15 per unit. If Henderson accepts the offer, 60% of the fixed overhead currently allocated to the motors could be avoided. If Henderson accepts the offer to purchase 6,000 motors from Plymouth, net income will: A) decrease by $1,200 B) increase by $30,000 C) decrease by $18,000 D) increase by $10,800 E) None of the above. Page 1
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2. Paulsen is considering the acquisition of a $217,750 machine that is expected to produce annual savings in cash operating costs of $50,000 over the next six years. If Paulsen uses the internal rate of return (IRR) to evaluate new investments and the firm has a hurdle rate of 12%, which of the following statements is correct? A) The machine's IRR is less than 4%, and the machine should not be acquired. B) The machine's IRR is approximately 10%, and the machine should not be acquired. C) The machine's IRR is approximately 10%, and the machine should be acquired. D) The machine's IRR is approximately 12%, and the machine should be acquired. E) All of the preceding statements are false. 3. Keep-it-Cool Products Inc. manufactures a medium-sized drink cooler. At June 30, the company had 5,000 coolers in inventory. The company's policy is to maintain a cooler inventory equal to 15% of next month's sales. The company expects the following sales activity for the third quarter of the year: July 50,000 coolers August 40,000 coolers September 25,000 coolers How many coolers should be produced in August ?
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Mgmt_201_(Ganguly)_Midterm2_Practice_F05v1_soln -...

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