Capital Budgeting Process
Question 1:
2D1-LS02
Which of the following items is not an example of a capital expenditure?
A ventilation system upgrade for EPA compliance.
Project bonuses paid to employees.
Purchase of a new assembly machine that will cut labor and maintenance costs.
Purchase of a new computer server for the research and development group.
Long-term capital budget expenditures are often grouped in one of the following categories: new machines and equipment intended for expansion, replacement of existing equipment, some allocations for research and development for new products and/or the expansion of existing products, mandatory projects required by law for safety, and other long-term exploratory expenditures for buildings, land, patents, and so on.
Question 2:
2D1-LS10
Which of the following is a primary difference between a cash outflow related to the development of a new product and the expenditure made for the bulk purchase of raw materials for existing products?
Potential profitability.
Contribution to working capital.
The number of accounting periods.
Effect of inflation.
Development of a new product exemplifies a capital investment; the bulk purchase of raw materials is a current investment. A capital budgeting project spans more than one accounting period whereas current investments can be written often in the same period in which the expenses occur.
Question 3:
2D1-AT05
Which one of the following is most relevant to a manufacturing equipment replacement decision?
disposal price of the old equipment.
original cost less depreciation of the old equipment.
a lump-sum write-off amount from the disposal of the old equipment.
gain or loss on the disposal of the old equipment.
Relevant costs and revenues include cash flows caused by the decision. The disposal price of the old equipment is a cash inflow that decreases the initial investment required for the replacement decision.
Question 4:
2D1-AT03
In order to increase production capacity, Gunning Industries is
2D1-LS02
Which of the following items is not an example of a capital expenditure?
A ventilation system upgrade for EPA compliance.
Project bonuses paid to employees.
Purchase of a new assembly machine that will cut labor and maintenance costs.
Purchase of a new computer server for the research and development group.
Long-term capital budget expenditures are often grouped in one of the following categories: new machines and equipment intended for expansion, replacement of existing equipment, some allocations for research and development for new products and/or the expansion of existing products, mandatory projects required by law for safety, and other long-term exploratory expenditures for buildings, land, patents, and so on.
Question 2:
2D1-LS10
Which of the following is a primary difference between a cash outflow related to the development of a new product and the expenditure made for the bulk purchase of raw materials for existing products?
Potential profitability.
Contribution to working capital.
The number of accounting periods.
Effect of inflation.
Development of a new product exemplifies a capital investment; the bulk purchase of raw materials is a current investment. A capital budgeting project spans more than one accounting period whereas current investments can be written often in the same period in which the expenses occur.
Question 3:
2D1-AT05
Which one of the following is most relevant to a manufacturing equipment replacement decision?
disposal price of the old equipment.
original cost less depreciation of the old equipment.
a lump-sum write-off amount from the disposal of the old equipment.
gain or loss on the disposal of the old equipment.
Relevant costs and revenues include cash flows caused by the decision. The disposal price of the old equipment is a cash inflow that decreases the initial investment required for the replacement decision.
Question 4:
2D1-AT03
In order to increase production capacity, Gunning Industries is