Name:

Final Exam
Actg 213
Instructions:
Please write your exam number on your Scantron sheet
This is a closed book and closed notes examination
Basic calculators are allowed. Electronic devices that can store text or transmit a wireless signal are not allowed.
For the multiple choice questions, fill in the correct bubble on your Scantron
sheet using a #2 pencil. If you change your mind about an answer, make
sure to erase the old answer completely.
Show your work on the workout problems and put your final answers in the
boxes provided. Answers with no supporting calculations (including multiple choice answers) or with calculations that are inconsistent with the final
answer will not receive credit.
This exam is subject to copyright law and can only be posted or distributed
(electronically or otherwise) with permission.

Final Exam
For each multiple choice question, choose the best answer (3 points each).
1. JKL Co. needs an additional delivery truck. It is planning to lease the truck and faces two
pricing options. The yearly cost information associated with each option is below.
Option A: 10,000 per year + .10 per mile
Option B: 20,000 per year + .05 per mile
How many miles would the truck have to be driven each year for JKL Co. to be indifferent
between these two options?
a. 100,000
b. 200,000
c. 300,000
d. 400,000
e. Cant tell from the information given
Use the following information to answer the next two questions:
2. RainCo makes three types of raincoats: Regular, Heavy Duty, and Extreme Sport. Cost,
production and demand information for each type of coat is below:
Regular Heavy Duty Extreme Sport
Sales Price
$40
$120
$300
Total Variable Cost/Unit
16
75
$150
Total Fixed Cost/Unit
4
3
50
Profit per unit
20
42
100
Machine Hours/unit
.5
1
5
Maximum Monthly Demand
5000
3000
1000
Because of a mechanical failure, RainCo has only 1,000 machine hours available this month.
What production mix will maximize RainCos profits this month?
a. Make only Regular coats
b. Make only Heavy Duty coats
c. Make only Extreme Sport Coats
d. Make Regular Coats and Heavy Duty Coats
e. Make Heavy Duty and Extreme Sport Coats

3. Now suppose that RainCo has 3,000 machine hours available this month. How many Heavy
Duty coats will RainCo make this month if it wants to maximize its profits?
a. 0
b. 500
c. 1000
d. 3000
e. None of the above

4. TTT Co. has developed a two-pronged approach to increasing profits next year. First, they
will run an advertising campaign that will cost $50,000. Second, they will decrease their
price by 10%. They believe that these two actions combined will result in a 25% increase in
quantity sold. Currently, they are selling 10,000 units per year. The current variable cost
per unit is $4 and the sales price is $10. Total fixed costs are $200,000. How will profits
change if they take on this project?
a. Decrease by 47,500
b. Decrease by 2500
c. Increase by 7500
d. Decrease by 42,500
e. None of the above

5. A&L Enterprises owns an apple orchard. The cost of watering the apple trees and harvesting
the apples for one season is $120,000. In 2013, A&L harvested 80 tons of apples. The apples
can be sold immediately for $200/ton or they can be processed further into applesauce. It
costs $75 to turn one ton of apples into a one-half ton of applesauce. The other half ton
is part waste and part seeds. The seeds extracted from one ton of apples can be sold for
$12.50. To make the applesauce, the company must also pay $4000 to rent the applesauce
processing equipment. Applesauce can be sold for $350 per ton. What is the incremental
profit or loss from processing the apples into applesauce instead of selling the apples?
a. $11,000 profit
b. $3,000 profit
c. $5,000 loss
d. $11,000 loss
e. $13,000 loss

6. When there is a production constraint, a company should emphasize the products with:
a. the highest unit contribution margins
b. the highest contribution margin ratios
c. the highest contribution margin per unit of the constrained resource
d. the highest contribution margin ratio per unit of the constrained resource

7. Turner Companys contribution margin ratio is 15%. If the degree of operating leverage is
12 at the $150,000 sales level, net operating income at the $150,000 sales level must equal:
a. $1,500
b. $2,700
c. $2,160
d. $1,875
e. None of the above

8. The Kelsh Company has two divisions: North and South. The divisions have the following
revenues and expenses:

Sales
Variable Expenses
Divisional Managers Salary
Allocated corporate overhead
Net Operating Income

North
South
$900,000 $800,000
450,000
300,000
260,000
210,000
240,000
190,000
$(50,000) $100,000

Management at Kelsh is considering the elimination of the North Division. If the North
Division is closed, it is anticipated that 20% of the North Divisions contribution margin
would move to the South Division because some North Division customers would begin
purchasing from the South Division. If the North Division were eliminated, its divisional
manager would no longer be needed. Allocated corporate overhead would be unaffected.
Given this information, what will Kelshs new TOTAL net operating income be if the North
Division were eliminated?
a. $50,000
b. $(140,000)
c. $(50,000)
d. $(102,000)
3

9. In a sell or process further decision, which of the following costs are relevant?
I. A variable production cost incurred prior to the split-off point.
II. An avoidable fixed production cost incurred after the split-off point.
a. Only I
b. Only II
c. Both I and II
d. Neither I nor II

10. Pool Companys variable expenses are 36% of sales. Pool is contemplating an advertising
campaign that will cost $20,000. If sales increase by $80,000, the companys net operating
income should increase by:
a. $28,800
b. $64,000
c. $8,800
d. $31,200
e. None of the above

11. The following is last months contribution margin income statement:

Sales (20,000 units)
$1,800,000
Variable Expenses
1,200,000
Contribution Margin
600,000
Fixed Expenses
400,000
Net Operating Income
$200,000

What is the companys break-even in sales dollars?

a. $600,000
b. $1,200,000
c. $0
d. $1,800,000
e. $1,600,000

12. Ellis Television makes and sells portable televisions. Each television regularly sells for $210.
The following cost data per television is based on a full capacity of 10,000 televisions produced
each period.
Direct Materials
$80
Direct Labor
$60
Manufacturing Overhead (70% variable and 30% unavoidable fixed) $40

A special order has been received by Ellis for a sale of 2,000 televisions to an overseas
customer. The only selling costs that would be incurred on this order would be $6 per
television for shipping. Ellis is now selling 6,000 televisions through regular channels each
period. What should be the minimum selling price per television in negotiating a price for
this special order?
a. $174
b. $168
c. $210
d. $180
e. $186

13. BA Enterprises sells two products: a necklace and a bracelet. Labor is a constrained resource
for BA. They are able to make as many necklaces as they can sell, but they would like to be
able to make more bracelets. You are given the following information:
Necklaces
Contribution Margin per unit
$10
Direct Labor Hours per unit
.8
Contribution Margin per Direct Labor Hour
$12.50

Bracelets
$5
.5
$10

BAs normal wage rate is $12 per hour. What is the highest total wage rate that BA should
be willing to pay for an extra hour of labor?
a. $12.50
b. $10.00
c. $12.00
d. $24.50
e. $22.00

14. For a manufacturing firm, which of the following should not be considered when determining
whether to accept a special order:
a. The price requested by the buyer for the special order
b. Lost contribution margin from giving up regular sales
c. The effect of the sale on demand for the firms products sold through regular distribution
channels
d. Rent paid on the factory where the order will be produced

15. The break-even point in unit sales increases when variable expenses:
a. increase and the selling price remains unchanged
b. decrease and the selling price remains unchanged
c. decrease and the selling price increases
d. remain unchanged and the selling price increases

16. Voyager Enterprises sells one product. In order to achieve a target profit of $20,000, Voyager
has to sell 15,000 units. To break even, Voyager has to sell 10,000 units. How much is
Voyagers total fixed cost?
a. $10,000
b. $30,000
c. $20,000
d. $40,000
e. Not enough information is given to answer this question

17. Xyner Company uses the Payback method to rank projects. It is considering a project that
would require the purchase of an asset for $200,000. The asset will have a salvage value of
$50,000 and will be depreciated over 6 years using straight-line depreciation. The project
will generate cash inflows of $75,000 per year in the first two years of the projects life and
$40,000 per year for years 3-6. Xyners discount rate is 12%. The payback period for this
project is:
a. 2 years or less
b. Greater than 2 years but less or equal to 3 years
c. Greater than 3 years but less than or equal to 4 years
d. Greater than 4 years

18. Pellis Electronics makes and sells portable hard drives. Each hard drive regularly sells for
$310. The following cost data per hard drive is based on a full capacity of 10,000 hard drives
produced each period.
Direct Materials
$90
Direct Labor
$80
Manufacturing Overhead $35

Pelliss manufacturing overhead is 80% variable. The other 20% is fixed. A special order has
been received by Pellis for a sale of 1,000 hard drives to an overseas customer. To fill this
order, Pellis would need to incur a one-time cost of $4,000 to hire an attorney to make sure
that Pellis properly complies with export regulations and taxes. The only selling costs that
would be incurred on this order would be $7 per hard drive for shipping. Pellis is now selling
6,000 hard drives through regular channels each period. What is the minimum selling price
per hard drive that Pellis should consider when negotiating a price for this special order?
a. $174
b. $205
c. $216
d. $209
e. $321

19. Which of the following is true about the capital budgeting methods we discussed in class?
a. The Profitability Index will always give you the same project ranking as a Net Present
Value analysis.
b. The Payback Method and the Simple Rate of Return method both take into account
the depreciation on any equipment that is purchased for the project.
c. A project with a net present value of zero will have an Internal Rate of Return that is
equal to the discount rate used in the NPV analysis.
d. The Payback Method uses discounted cash flows as long as they occur before the end
of the payback period.
e. Both (c) and (d) are correct.

20. Logan Company is considering two projects, A and B. The following information has been
gathered on these projects:
Project A
Initial investment needed:
$40,000
Present value of future cash flows: $60,000
Useful life:
4 years

Project B
$60,000
$85,000
4 years

Based on this information, which of the following statements is (are) true?

I. Project A has the highest ranking according to the project profitability index criterion.
II. Project B has the highest ranking according to the net present value criterion.
a. Only I
b. Only II
c. Both I and II
d. Neither I nor II

21. (8 points) You want to buy and operate a food truck. The benefits and costs associated with
this project are listed below. You plan to operate the food truck for 20 years and then you
will sell the truck and equipment for the salvage value listed below and recover your working
capital. The truck and equipment will be depreciated using straight-line depreciation. The
annual fixed costs in the table below include depreciation on the truck and equipment. Your
discount rate is 7%.
Initial Cost of Truck/Equipment ($200,000)
Working Capital Needed
(30,000)
Contribution Margin - year 1
30,000
Contribution Margin - year 2
33,000
Contribution Margin - years 3-20
35,000
Annual fixed costs
(13,000)
Truck/Equipment Salvage Value
40,000
Required: What is the net present value of this project? (Use the PV and PVA
factors on the tables attached at the end of the exam for your analysis.)

22. (10 points) Foulds Company makes 10,000 units per year of a part it uses in the products it
manufactures. The unit product cost of this part is computed as follows:

Direct Materials
$13.20
Direct Labor
20.80
Variable Manufacturing Overhead
3.00
Fixed manufacturing overhead
10.90
Unit Production Cost
$47.90

An outside supplier has offered to sell the company all of these parts it needs for $42.30 a
unit. If the company accepts this offer, the facilities now being used to make the part could
be used to make more units of a product that is in high demand. The additional contribution
margin on this other product would be $39,000 per year. If the part were purchased from
the outside supplier, $4.50 of the fixed manufacturing cost could be avoided. The remaining
fixed manufacturing overhead would be applied to the companys remaining products.
Required:
a. How much of the unit product cost of $47.90 is relevant in the decision of whether to
make or buy the part?

b. What is the net total dollar advantage (disadvantage) of purchasing the part rather
than making it?

c. What is the maximum amount the company should be willing to pay an outside supplier
per unit for the part if the supplier commits to supplying all 10,000 units required each
year?

10

PresentValueof$1receivedinnperiods.
Periods

2%

3%

4%

5%

6%

7%

8%

9%

10% 11% 12% 13% 14% 15% 16% 17% 18%

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

0.980

0.971

0.962

0.952

0.943

0.935

0.926

0.917

0.909

0.901

0.893

0.885

0.877

0.870

0.862

0.855

0.847

0.961

0.943

0.925

0.907

0.890

0.873

0.857

0.842

0.826

0.812

0.797

0.783

0.769

0.756

0.743

0.731

0.718

0.942

0.915

0.889

0.864

0.840

0.816

0.794

0.772

0.751

0.731

0.712

0.693

0.675

0.658

0.641

0.624

0.609

0.924

0.888

0.855

0.823

0.792

0.763

0.735

0.708

0.683

0.659

0.636

0.613

0.592

0.572

0.552

0.534

0.516

0.906

0.863

0.822

0.784

0.747

0.713

0.681

0.650

0.621

0.593

0.567

0.543

0.519

0.497

0.476

0.456

0.437

0.888

0.837

0.790

0.746

0.705

0.666

0.630

0.596

0.564

0.535

0.507

0.480

0.456

0.432

0.410

0.390

0.370

0.871

0.813

0.760

0.711

0.665

0.623

0.583

0.547

0.513

0.482

0.452

0.425

0.400

0.376

0.354

0.333

0.314

0.853

0.789

0.731

0.677

0.627

0.582

0.540

0.502

0.467

0.434

0.404

0.376

0.351

0.327

0.305

0.285

0.266

0.837

0.766

0.703

0.645

0.592

0.544

0.500

0.460

0.424

0.391

0.361

0.333

0.308

0.284

0.263

0.243

0.225

0.820

0.744

0.676

0.614

0.558

0.508

0.463

0.422

0.386

0.352

0.322

0.295

0.270

0.247

0.227

0.208

0.191

0.804

0.722

0.650

0.585

0.527

0.475

0.429

0.388

0.350

0.317

0.287

0.261

0.237

0.215

0.195

0.178

0.162

0.788

0.701

0.625

0.557

0.497

0.444

0.397

0.356

0.319

0.286

0.257

0.231

0.208

0.187

0.168

0.152

0.137

0.773

0.681

0.601

0.530

0.469

0.415

0.368

0.326

0.290

0.258

0.229

0.204

0.182

0.163

0.145

0.130

0.116

0.758

0.661

0.577

0.505

0.442

0.388

0.340

0.299

0.263

0.232

0.205

0.181

0.160

0.141

0.125

0.111

0.099

0.743

0.642

0.555

0.481

0.417

0.362

0.315

0.275

0.239

0.209

0.183

0.160

0.140

0.123

0.108

0.095

0.084

0.728

0.623

0.534

0.458

0.394

0.339

0.292

0.252

0.218

0.188

0.163

0.141

0.123

0.107

0.093

0.081

0.071

0.714

0.605

0.513

0.436

0.371

0.317

0.270

0.231

0.198

0.170

0.146

0.125

0.108

0.093

0.080

0.069

0.060

0.700

0.587

0.494

0.416

0.350

0.296

0.250

0.212

0.180

0.153

0.130

0.111

0.095

0.081

0.069

0.059

0.051

0.686

0.570

0.475

0.396

0.331

0.277

0.232

0.194

0.164

0.138

0.116

0.098

0.083

0.070

0.060

0.051

0.043

0.673

0.554

0.456

0.377

0.312

0.258

0.215

0.178

0.149

0.124

0.104

0.087

0.073

0.061

0.051

0.043

0.037

11%

12%

13%

PresentValueofanAnnuityof$1receivedattheendoftheperiodfornperiods.
Periods

2%

3%

4%

5%

6%

7%

8%

9%

10%

14%

15%

0.980

0.971

0.962

0.952

0.943

0.935

0.926

0.917

0.909 0.901 0.893 0.885 0.877 0.870

1.942

1.913

1.886

1.859

1.833

1.808

1.783

1.759

1.736 1.713 1.690 1.668 1.647 1.626

2.884

2.829

2.775

2.723

2.673

2.624

2.577

2.531

2.487 2.444 2.402 2.361 2.322 2.283

3.808

3.717

3.630

3.546

3.465

3.387

3.312

3.240

3.170 3.102 3.037 2.974 2.914 2.855

4.713

4.580

4.452

4.329

4.212

4.100

3.993

3.890

3.791 3.696 3.605 3.517 3.433 3.352

5.601

5.417

5.242

5.076

4.917

4.767

4.623

4.486

4.355 4.231 4.111 3.998 3.889 3.784

6.472

6.230

6.002

5.786

5.582

5.389

5.206

5.033

4.868 4.712 4.564 4.423 4.288 4.160

7.325

7.020

6.733

6.463

6.210

5.971

5.747

5.535

5.335 5.146 4.968 4.799 4.639 4.487

8.162

7.786

7.435

7.108

6.802

6.515

6.247

5.995

5.759 5.537 5.328 5.132 4.946 4.772

10

8.983

8.530

8.111

7.722

7.360

7.024

6.710

6.418

6.145 5.889 5.650 5.426 5.216 5.019

11

9.787

9.253

8.760

8.306

7.887

7.499

7.139

6.805

6.495 6.207 5.938 5.687 5.453 5.234

12

10.575

9.954

9.385

8.863

8.384

7.943

7.536

7.161

6.814 6.492 6.194 5.918 5.660 5.421

13

11.348 10.635

9.986

9.394

8.853

8.358

7.904

7.487

7.103 6.750 6.424 6.122 5.842 5.583

14

12.106 11.296 10.563

9.899

9.295

8.745

8.244

7.786

7.367 6.982 6.628 6.302 6.002 5.724

15

12.849 11.938 11.118 10.380

9.712

9.108

8.559

8.061

7.606 7.191 6.811 6.462 6.142 5.847

16

13.578 12.561 11.652 10.838 10.106

9.447

8.851

8.313

7.824 7.379 6.974 6.604 6.265 5.954

17

14.292 13.166 12.166 11.274 10.477

9.763

9.122

8.544

8.022 7.549 7.120 6.729 6.373 6.047

18

14.992 13.754 12.659 11.690 10.828 10.059

9.372

8.756

8.201 7.702 7.250 6.840 6.467 6.128

19

15.678 14.324 13.134 12.085 11.158 10.336

9.604

8.950

8.365 7.839 7.366 6.938 6.550 6.198

20

16.351 14.877 13.590 12.462 11.470 10.594

9.818

9.129

8.514 7.963 7.469 7.025 6.623 6.259

30

22.396 19.600 17.292 15.372 13.765 12.409 11.258 10.274 9.427 8.694 8.055 7.496 7.003 6.566