# ACC 227 ACC227 Module 7 Check Your Understanding Answers (AAU Online)

1.What costs are never differential?

2.What factors should be considered when evaluating alternative product decisions?

3.Which qualitative factors should be considered in a make-or-buy decision?

4.Tehama Company is considering purchasing a part that is now manufactured internally. The costs to produce the part are: $8 for direct materials, $4 for direct labor, $6 for variable overhead, and $12 for fixed overhead. The relevant cost of making the part is:

5.In making a decision about whether or not to drop a market segment of a business, which type of costs would not be relevant?

6.When considering the dropping of a segment, past costs that cannot be avoided are:

7.The joint cost of producing C and D total $20,000. The result is 1,000 pounds of C which can be sold for $30,000 and 1,200 pounds of D which can be sold for $24,000. Product D can be further processed for $10,000 and sold as E for $35,000. Should product E be produced?

8.Spring Corporation expects to buy a machine for $252,000, which will be depreciated over a 10-year period on a straight-line basis with no salvage value. The machine is expected to generate a net cash flow of $72,000 per year. What is the payback period?

9.A $120,000 asset that is being depreciated at a rate of 10% per year and will increase the company’s annual net income by $20,000 a year provides an approximate unadjusted rate of return of:

10.Under the net present value method of evaluating capital investments, an investment is acceptable if:

11.An asset is purchased for $240,000. It is expected to provide an additional $56,000 of annual net cash inflows. The asset has a 10-year life and an expected salvage value of $24,000. The hurdle rate is 10%. The present value of an annuity factor of 10% for 10 years is 6.1446, and the present value of $1 discounted for 10 years of 10% is 0.3855. Given the data provided, the net present value of the investment is approximately: