Multiple Choice Answers

Mountain Brook Company is considering two investment opportunities whose cash flows are provided below:
Year Investment A Investment B
Year 0 ($15,000) ($9,000)
Year 1 5,000 5,000
Year 2 5,000 4,000
Year 3 5,000 3,000
Year 4 4,000 1,000
The company’s hurdle rate is 12%. What is the present value index of Investment A?
A. 1.12
B. 1.01
C. 1.00
D. 0.97
Which of the following does not represent an advantage of the unadjusted rate of return over the payback method for evaluating capital projects?
A. All of these are advantages
B. The unadjusted rate of return method considers the investment’s profitability.
C. The unadjusted rate of return method considers the recovery of the initial investment in the project.
D. The unadjusted rate of return is a percentage that can be compared to a stated hurdle rate.

Select the incorrect statement concerning the internal rate of return (IRR) method of evaluating capital projects.
A. The internal rate of return is that rate that makes the present value of the initial outlay equal to zero.
B. The higher the IRR the better.
C. A project whose IRR is less than the cost of capital should be rejected.
D. If a project has a positive net present value then its IRR will exceed the hurdle rate.

Which of the following is not a factor in explaining why the present value of a future dollar is less than one dollar?
A. Risk of failure to collect
B. Inflation
C. Interest
D. Historical cost

Melanie Company is considering a capital project that costs $16,000. The project will deliver the following cash flows:
Year 1 Year 2 Year 3 Year 4 Year 5
$8,000 $6,000 $5,000 $6,000 $5,000
Using the incremental approach, the payback period for the investment is
A. 5 years.
B. 2 years.
C. 1.66 years.
D. 2.4 years.

Which of the following is the approximate internal rate of return for an investment that costs $45,880 and provides a $4,000 annuity for 20 years?
A. 5%
B. 8%
C. 10%
D. 6%

An investment that costs $30,000 will produce annual cash flows of $10,000 for a period of 4 years. Given a desired rate of return of 8%, the investment will generate a (round your answer to the nearest whole dollar)
A. positive net present value of $33,121
B. negative net present value of $33,121
C. negative net present value of $3,121
D. positive net present value of $3,121
Yoplait Company employs material handling employees who move materials between production divisions at a labor cost of $160,000 a year. It is estimated that these employees move 75,000 pounds of material per year. If 6,000 pounds are moved in March, how much of the material handling cost should be assigned to products made in March?
A. $12,000
B. $26,666
C. $75,000
D. $12,800

Mickey & Co. expects overhead costs of $30,000 per month and direct production costs of $12 per unit. The estimated production activity for the 20X4 accounting period is as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units Produced 11,500 9,000 8,250 11,250
The predetermined overhead rate based on units produced is (rounded to the nearest penny) is
A. $0.75 per unit.
B. $1.33 per unit.
C. $21.00 per unit.
D. $9.00 per unit.

Perrot Company has three divisions. For Perrot, a cost should be considered a direct cost if
A. it meets certain guidelines imposed by generally accepted accounting principles.
B. it can be traced to a division in a cost-effective manner.
C. it is a fixed cost.
D. it can be allocated to a division using an volume-based cost driver.

Moore Company uses process costing. The following information was available for October:
Units Costs
Work in process Oct. 1 100 $ 7,500
Work in process Oct. 30 200 (A)
Transferred in 1,000 $12,500
Ending inventory is 50% complete. Based on the information given, (A) above would be what amount?
A. $2,000
B. $1,500
C. $1,650
D. $4,000

Congress Manufacturing is currently working on two jobs. The job order cost sheets for Job 101
Job 101 Job 102
Direct Materials $12,000 $15,000
Direct Labor $24,000 $45,000
If overhead is applied to jobs at $.80 per direct labor dollar, the total manufacturing cost for the company would be
A. $96,000.
B. $162,000.
C. $55,200.
D. $151,200.

When a particular job is completed in a job order cost system, the general journal entry would include a
A. debit to Work in Process Inventory and a credit to Finished Goods Inventory.
B. debit to Work in Process and a credit to Manufacturing Overhead.
C. debit to Finished Goods Inventory and a credit to Work in Process Inventory.
D. debit to Finished Goods Inventory and a credit to the appropriate job order cost sheet.

Select the incorrect break-even equation from the following:
A. Total contribution margin = total fixed costs
B. Total revenue = total costs
C. Total fixed costs / contribution margin ratio
D. Total contribution margin = total variable