1. (TCO 9) Which one of the following stages of the management decision-making process is properly sequenced?
a) Evaluate possible courses of action, make decision
b) Review the actual impact of the decision, determine possible courses of action
c) Assign responsibility for the decision, identify the problem
d) Make a decision, assign responsibility
2. (TCO 9) When is incremental analysis most useful?
a) After a decision has been made to determine its effectiveness
b)In choosing between capital budgeting methods
c)In evaluating the profitability of a company
d)In developing relevant information for management decisions
3. (TCO 9) Which of the following will never be a relevant cost?
a) Opportunity cost
b) Sunk cost
c) Variable cost
d) Fixed cost
4. (TCO 9) A company is deciding whether or not to replace some old equipment with new equipment. Which of the following is not considered in the incremental analysis?
a) Annual operating cost of the new equipment
b) Annual operating cost of the old equipment
c) Net cost of the new equipment
d) Book value of the old equipment
5. (TCO 9) It costs Lannon Fields $14 of variable costs and $6 of allocated fixed costs to produce an industrial trash can that sells for $30. A buyer in Mexico offers to purchase 2,000 units at $18 each. Lannon has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income?
a) decrease $4,000
b) increase $4,000
c) increase $36,000
d) increase $8,000
6. (TCO 9) Wishnell Toys can make 1,000 toy robots with the following costs:
Direct Materials $70,000
Direct Labor 26,000
Variable Overhead 15,000
Fixed Overhead 15,000
The company can purchase the 1,000 robots externally for $120,000. The avoidable fixed costs are $5,000 if the units are purchased externally. What is the cost savings if the company makes the robots?
a) $1,000
b) $5,000
c) $10,000
d) $4,000
7. (TCO 9) All of the following are relevant to the sell or process-further decision, except for __________
a) costs incurred beyond the split-off point.
b) revenues at the split-off point.
c) costs incurred before the split-off point.
d) revenues beyond the split-off point
8. (TCO 8) Most of the capital budgeting methods use __________
a) accrual accounting numbers
b) cash flow numbers
c) net profit
d) accrual accounting revenues
9. (TCO 8) The capital budgeting decision depends in part on the __________
a) availability of funds
b) relationships among proposed projects
c) risk associated with a particular project
d) all of these
10. (TCO 8) The cash-payback technique __________
a) should be used as a final screening tool.
b) can be the only basis for the capital-budgeting decision.
c) is relatively easy to compute and understand.
d) considers the expected profitability of a project.
11. (TCO 8) All of the following statements about intangible benefits in capital budgeting are correct, except that they __________
a) include increased quality and employee loyalty.
b) are difficult to quantify
c) are often ignored in capital-budgeting decisions.
d) cannot be incorporated into the NPV calculation.
12. (TCO 8) The profitability index __________.
a) does not take into account the discounted cash flows.
b) is calculated by dividing total cash flows by the initial investment.
c) allows comparison of the relative desirability of projects that require differing initial investments.
d) will never be greater than 1.
13. (TCO 8) Post audits of capital projects __________
a) are usually foolproof.
b) are done using different evaluation techniques than were used in making the original capital budgeting decision.
c) provide a formal mechanism by which the company can determine whether existing projects should be supported or terminated.
d) all of the above
14. (TCO 8) A company has a minimum required rate of return of 9% and is considering investing in a project that costs $50,000 and is expected to generate cash inflows of $20,000 at the end of each year for 3 years. The profitability index for this project is __________
a) 0.99.
b) 1.00.
c) 1.01.
d) 1.20.
15. (TCO 8) Disadvantages of the annual rate of return method include all of the following, except that __________
a) it relies on accrual accounting numbers instead of actual cash flows.
b) it does not consider the time value of money.
c) no consideration is given as to when the cash inflows occur.
d) management is unfamiliar with the information used in the computation