Provide examples of cost centers (2 points) and explain why zero-based budgeting can be an effective cost control tool (4 points).

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Question 19

5pts

What do errors mean in forecasting? (5 points)

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Question 20

8pts

A restaurant budgeted 1,000 customers with an average check of $12.00. Actual customers were 900 with an average check of $12.50. Calculate price variance, quantity variance, and total variance and explain if the variance is favorable. (8 points)

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Question 21

10pts

If an equipment investment were $10,000 with a five-year life using straight-line depreciation (no salvage value) and provided additional annual sales revenue of $3,500 and expenses (excluding depreciation) of $300, and the company is in a 50 percent tax bracket.

a. The payback period is (5 points):

b. Given the facts in the preceding question, the ARR is: (5 points)

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Question 22

10pts

Ahotel manager wishes to choose between two alternative investments giving the following annual net cash inflows over a five-year period:

YearAlternative 1Alternative 2

1$9,400$26,200

2$12,600$22,800

3$19,000$19,200

4$23,000$12,800

5$28,000$9,000

The amount of investment under either alternative will be $70,000.

a. Using the payback period method, in which year, under both alternatives, will she have recovered the initial investment (5 points)

b. Using NPV at 10 percent (.9091, .8264, .7513, .6830, & .6209 for year 1 to year 5 respectively), would either alternative be a good investment? (5 points)

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Question 23

10pts

Oak's Pizza is planning to purchase a new type of oven that cooks pizza much faster than the conventional oven now used. The new oven is estimated to cost $10,000 (use straight-line depreciation) and will have a five-year life, after which it will be traded in for $2,000. Oak has calculated that the new oven will allow him to increase his sales by $20,000 a year. His food cost is 30 percent, labor cost is 30 percent, and other costs are 10 percent of sales revenue. The tax rate is 35 percent. For any new investment, Oak wants a minimum 15 percent return (15% discount factor: .8696, .7561, .6575, .5718, and .4972 for Yr1 to Yr5, respectively). Use IRR to help him decide if he should purchase the new oven (10 points).

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