Saylor Updated BUS105 Exam Questions and Answers by andrew

Comprehensive and Detailed Explanation:

The Manufacturing Overhead account is used to track both actual and applied overhead. At the end of the period, the difference is calculated:

If actual > applied → underapplied (debit balance)

If applied > actual → overapplied (credit balance)

Answer: A

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We are evaluating whether or not the company should invest in a project based on the internal rate of return (IRR). IRR is defined as the discount rate that results in a net present value (NPV) of zero.

Based on the data provided:

At 6% → NPV = +$192.04 (positive)

At 7% → NPV = −$2.72 (nearly zero, slightly negative)

At 8% → NPV = −$191.60 (negative)

This means the IRR lies very close to 7%. Specifically, it is just under 7%, because the NPV turns negative slightly when the discount rate reaches 7%.

According to managerial accounting principles, if:

IRR > required rate of return → Accept the investment

IRR = required rate of return → Accept the investment

IRR < required rate of return → Reject the investment

In this case, since the IRR is approximately equal to the required rate of return (7%), the company should accept the investment.

Let’s examine the answer options:

A. Incorrect. The internal rate of return can be estimated—it lies between 6% and 7%, very close to 7%.

B. Incorrect. While NPV is slightly negative at 7%, this does not mean there is a true loss over three years—it just indicates IRR is approximately 6.99%, which still validates accepting if it's close to the required rate.

C. Incorrect. IRR is not 6%; NPV at 6% is still positive.

D. Correct. IRR ≈ 7%, which equals the required rate of return, so the investment should be accepted.

Therefore:

Answer: D

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Option 1:

Monthly lease: $225

Included: 1,500 copies/month = 18,000 copies/year

Additional: $0.15 per copy over 18,000

Option 2:

Monthly lease: $250

Included: 1,800 copies/month = 21,600 copies/year

Additional: $0.02 per copy over 21,600

Total copies expected: 22,500

Option 1:

Annual lease = $225 × 12 = $2,700

Extra copies = 22,500 – 18,000 = 4,500 × $0.15 = $675

Total cost = $2,700 + $675 = $3,375

Option 2:

Annual lease = $250 × 12 = $3,000

Extra copies = 22,500 – 21,600 = 900 × $0.02 = $18

Total cost = $3,000 + $18 = $3,018

Savings = $3,375 − $3,018 = $357

This is a classic cost comparison decision problem where the differential costs are evaluated to determine the lower-cost alternative. Based on cost-volume information and break-even comparison logic, Option 2 provides the lowest cost.