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Acct 2220 Zeigler: Attendance Quiz #2 (Chp 6, 7) - 15 Pts

 

Name:__________________________ Group #:_____

 


 

Class: 4:30 6:00 7:30

 


 

____ 1. Select the correct statement regarding relevant costs and/or revenues.

 

a. To be relevant, a cost or revenue must be future-oriented and must differ between the alternatives.

 

b. Sunk costs are usually relevant for decision-making purposes.

 

c. Differential revenues are expected future revenues that do not vary between the alternatives under

 

consideration.

 

d. Avoidable costs are also known as sunk costs.

 

____ 2. Fred Falcon has a business decision to make. He is evaluating a number of costs to determine relevancy.

 

Which of the following are not costs that can be eliminated by taking a specified course of action?

 

a. avoidable costs.

 

b. differential costs.

 

c. opportunity costs.

 

d. sunk costs.

 

e. none of the above (i.e. all of the above represent relevant costs).

 

____ 3. Mr. Collins is deciding whether to remain in the mansion he has lived in for the past few years, which is

 

located very near his work, or moving to a new mansion in the suburbs and doubling his commute time.

 

The old mansion was purchased for $1,000,000 and has a market value of $1,300,000. The new mansion

 

can be purchased for about $1,600,000. Which of the following is not relevant to his decision?

 

a. driving distance to work.

 

b. estimated cost of the new mansion.

 

c. current market value of the old mansion.

 

d. initial cost of the old mansion.

 

e. none of the above (i.e. all of the above would be relevant to the decision).

 

____ 4. All of the following statements describe qualities of decision-making relevance except:

 

a. relevant information includes quantitative data.

 

b. relevant information requires a high degree of precision.

 

c. relevant information differs between the alternatives.

 

d. relevant information includes qualitative data.

 

____ 5. Ms. Weber purchased a $1 million raffle ticket for $10. Prior to the grand prize drawing, her fellow group

 

members were all feeling lucky and wanted to buy a ticket too. Unfortunately, all tickets had been sold.

 

One member offered $50 for her ticket, and then another member later offered her $100 just prior to the

 

drawing. She refused! What is the opportunity cost to the owner of keeping this ticket (i.e. not selling)?

 

a. $ 10 b. $ 50 c. $ 100 d. $150 e. $160 f. There is no opportunity cost here.

 

____ 6. The budgeting technique that provides for employee input into the planning process is known as:

 

a. participative budgeting.

 

b. perpetual budgeting.

 

c. continuous budgeting.

 

d. zero-based budgeting.

 

____ 7. Budgeted depreciation expense would never appear on:

 

a. the Cash Budget.

 

b. the Budgeted Income Statement.

 

c. the Selling and Administrative (S&A) Expense Budget.

 

d. any of the above budgets.

 


 

8. Segment Elimination Decision (3 pts total)

 

Sweeney & Sewards, Inc. produces a mechanical valve used in water systems. Three years ago the company

 

introduced an electronic version of the valve. Sales of the mechanical model have steadily declined, and the

 

company will report a loss on the product this year as follows:

 


 

If production of the mechanical valve is discontinued, product-level costs could be eliminated, but facility level

 

and corporate costs would not be affected.

 

Required:

 

a) Prepare a quantitative analysis indicating whether the mechanical valve production should be discontinued.

 

Clearly indicate your recommendation to keep, or not to keep, the product line on a quantitative basis (2 pts).

 


 

b) Exclusive of your quantitative analysis above, list two qualitative factors that should be considered in this

 

decision (1 pt).

 


 

-----------------------------------------------------------------------------------------------------------------------------____ 9. Nell & Souza, Inc. provides protective face masks to professional hockey players. Mgmt desires a

 

minimum ending inventory, at cost, of $20,000 (to insure adequate inventory at month-end). Mgmt

 

expects sales revenue of $120,000 next month and has a beginning inventory, at cost, of $30,000.

 

Budgeted Cost of Goods Sold is 60% of sales. Budgeted purchases for next month would be:

 

a. $52,000

 

b. $62,000

 

c. $70,000

 

d. $72,000

 

e. $92,000

 


 

10. Gucker & Renney Academic Supply presented the following budgeted information to prepare their

 

November Cash Budget: (4 pts total)

 

Oct

 

Nov

 

Dec

 

Sales

 

$110,000

 

$130,000

 

$180,000

 

Merchandise purchases

 

$ 85,000

 

$ 92,000

 

$105,000

 

Selling & Admin Expenses

 

$ 50,000

 

$ 50,000

 

$ 50,000

 

Cash Budget assumptions: All sales are on credit and are collected 40% in the month of the sale,

 

59% in the month following the sale, with 1% uncollectible (but still owed). Merchandise purchases

 

are paid in full the month following the month of purchase. The monthly selling and administrative

 

expenses include $8,000 of depreciation expense relating to display fixtures and warehouse equipment.

 

All other selling and administrative costs are paid in cash in the month incurred. Management requires

 

a minimum cash balance of $14,000. Any amount below this will be borrowed, using a bank credit

 

line, but all bank borrowings must be in whole increments of $1,000. All borrowings are made at

 

month-end. Ignore any bank interest expense charges.

 

a) Referring to pg 267 as a guide, prepare a Cash Budget for the month of November only, showing all

 

details. The company expects to have $15,000 of cash on hand November 1st. (3 pts)

 


 

November 1st Beginning Cash Bal

 


 

$15,000

 


 

Note: Show your calculations in this column

 

(the # of rows shown is generic).

 


 

Ending Cash Balance at Nov 30th

 

b) What would be the Accounts Payable balance (relating to purchases) at the end of November? (1 pt)

 


 

c) 1PT EC Bonus Question (OPTIONAL) ? You MUST show/label your work for any credit!

 

When preparing a budgeted ending December 31 st Balance Sheet, what would be the Accounts Receivable ending

 

balance? Assume there are no uncollectible accounts at the September 30 th Balance Sheet date.

 


 

 


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