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Minor Electric has received a special one-time order for 900 light fixtures (units) at $7 per unit. Minor currently produces and sells 8,500 units at...

1.Minor Electric has received a special one-time order for 900 light fixtures (units) at $7 per unit. Minor currently produces and sells 8,500 units at $9 each. This level represents 85% of its capacity. Production costs for these units are $5 per unit, which includes $4.50 variable cost and $0.50 fixed cost. To produce the special order, a new machine needs to be purchased at a cost of $1,200 with a zero salvage value. Management expects no other changes in costs as a result of the additional production.Should the company accept the special order?

 A. No, because net income would decrease by $900.

B. No, because net income would decrease by $900.

C. Yes, because because net income would increase by $6,300.

D. Yes, because because net income would increase by $1,050.

E. No, because because net income would decrease by $4,050


2.Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $2.40 per unit. Bluebird currently produces and sells 75,000 units at $6.40 each. This level represents 80% of its capacity. Production costs for these units are $3.60 per unit, which includes $1.95 variable cost and $1.65 fixed cost. If Bluebird accepts this additional business, the effect on net income will be:

A. $36,000 increase.

B. $6,750 increase.

C. $29,350 increase.

D. $18,000 decrease.

E. $29,250 decrease.


3.Ahngram Corp. has 1,000 defective units of a product that cost $2.60 per unit in direct costs and $6.10 per unit in indirect cost when produced last year. The units can be sold as scrap for $3.60 per unit or reworked at an additional cost of $2.10 and sold at full price of $10.80. The incremental net income (loss) from the choice of reworking the units would be:

A. $3,600 higher if the units are reworked.

B. $10,800 higher if the units are reworked.

C. $2,100 lower if the units are reworked.

D. $5,100 higher if the units are reworked.

E. $2,100 higher if the units are reworked.



4.Porter Co. is analyzing two projects for the future. Assume that only one project can be selected.

Cost of machine                       Project X                                                    Project Y

 Net cash flow:                        $68,000                                                       $60,000 

Year 1                                     24,000                                                         4,000             

Year 2                                      24,000                                                         26,000                    

Year 3                                        24,000                                                         26,000

Year 4                                             0                                                               20,000

If the company is using the payback period method and it requires a payback of three years or less, which project should be selected?

A. Both X and Y are acceptable projects.

B. Project X.

C. Project Y.

D. Neither X nor Y is an acceptable project.

E. Project Y because it has a lower initial investment.


5.A company is considering the purchase of a new piece of equipment for $120,400. Predicted annual cash inflows from this investment are $55,000 (year 1), $20,500 (year 2), $27,500 (year 3), $21,500 (year 4) and $25,000 (year 5). The payback period is:

A. 4.19 years.

B. 4.02 years.

C. 3 years

D. 3.81 years.

E. 2.81 years.


6.A disadvantage of using the payback period to compare investment alternatives is that:

A.       It ignores cash flows beyond the payback period.

B.       It includes the time value of money.

C. It cannot be used when cash flows are not uniform.

D. It cannot be used if a company records depreciation.       

E. It cannot be used to compare investments with different initial investments.


7.A company is planning to purchase a machine that will cost $26,400, has a six-year life, and would be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the payback period for this machine?

Sales                                                                                                         $129,000   

Cost: 

Manufacturing                                                                      $53,300   

Depreciation on machine                                                     5,300   

Selling and administrative expenses                                  43,000           (101,600) 

Income before taxes                                                                                   $27,400   

Income tax (35%)                                                                                       (9,590) 

Net income                                                                                                $17,810 

A. 1.79 years

B. 1.38 years

C. 3.62 years

D. 3.57 years

E. 6 years.

Top Answer

Correct Options are as follows:- 1) D. Yes, because because net income would increase by... View the full answer

3 comments
  • Feel free to ask any query!!!
    • shrivastavsachin760
    • May 15, 2018 at 12:23pm
  • 1. A machine costs $500,000, has a $25,500 salvage value, is expected to last 8 years, and will generate an after-tax income of $62,000 per year after straight-line depreciation. Assume the company requires a 12% rate of return on investments. Compute the net present value of each potential investment. Cash Flow Select chart Amount PV Factor Present Value Annual Cash flow Present value of an annuity of 1 $121,127x 4.9676 $601,760 Residual value Present value of 1 $26,900x 0.4039 $10,865 Present value of cash inflows $612,625 Immediate cash outflows $500,000 Net present value ? What's the net present value? $112,625 & 1,112,625 doesn't work.
    • EverlynN21
    • May 15, 2018 at 1:39pm
  • Dear as per Course hero Tutor policy I can't Answer in comments these are only for any clarification required if any
    • shrivastavsachin760
    • May 15, 2018 at 1:54pm

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