Question 1.1. (TCO 1) A common starting point in the budgeting process is _____.
expected future net income
past performance
to motivate the sales force
a clean slate, with no expectations
Question 2.2. (TCO 2) "Groupthink" is a primary disadvantage of which qualitative forecasting method?
Executive opinions
Sales force polling
Delphi method
Consumer surveys
Question 3.3. (TCO 3) Which of the following is not used to evaluate the accuracy of regression results?
Mean absolute deviation
Coefficient of determination
Prediction confidence interval
T-statistic
Question 4.4. (TCO 4) Which of the following is not a reason why capital expenditures are incurred?
Changes in production methods
Changes in style
Reduced costs
Reduced sales
Question 5.5. (TCO 5) Which of the following is true when ranking proposals using zero-base budgeting?
Nonfunded packages should not be ranked.
Adjustments are not allowed once the ranking is complete.
Due to changing circumstances, a low-priority item may later become a high-priority item.
Decision packages are ranked in order of increasing benefit.
Question 6.6. (TCO 6) When using the payback period technique, the payback period is expressed in terms of _____.
a percentage
dollars
years
months
Question 7.7. (TCO 6) The profitability index is computed by dividing the _____.
total cash flows by the initial investment
present value of cash inflows by the present value of each outflow
initial investment by the total cash flows
initial investment by the present value of cash flows
Question 8.8. (TCO 6) A company projects annual cash inflows of $85,000 each year for the next 5 years if it invests $300,000 in new equipment. The equipment has a 5-year life and an estimated salvage value of $75,000. What is the accounting rate of return on this investment?
28.3%
13.3%
15%
43.3%
Question 9.9. (TCO 6) If an asset costs $210,000 and is expected to have a $30,000 salvage value at the end of its 10-year life, and generates annual net cash inflows of $30,000 each year, the payback period is _____.
5 years
6 years
7 years
8 years
Question 10.10. (TCO 6) Selma Inc. is comparing several alternative capital budgeting projects as shown below.
Projects
A
B
C
Initial Investment
$40,000
$60,000
$80,000
Present value of cash inflows
$60,000
$55,000
$100,000
Using the profitability index, rank the projects, starting with the most attractive.
A, C, B
A, B, C
C, A, B
C, B, A
Question 11.11. (TCO 6) A company has a minimum required rate of return of 9%. It is considering investing in a project that costs $175,000 and is expected to generate cash inflows of $70,000 at the end of each year for 3 years. The approximate net present value of this project is _____.
$177,170
$35,000
$17,718
$2,191
Question 12.12. (TCO 7) Which of the following would not appear as a fixed expense on a selling and administrative expense budget? Freight-out
Office salaries
Property taxes
Depreciation
Question 13.13. (TCO 7) A company budgeted unit sales of 102,000 units for January, 2008 and 120,000 units for February, 2008. The company has a policy of having an inventory of units on hand at the end of each month equal to 30% of next month's budgeted unit sales. If there were 30,600 units of inventory on hand on December 31, 2007, how many units should be produced in January, 2008 in order for the company to meet its goals?
107,400 units
102,000 units
96,600 units
138,000 units
Question 14.14. (TCO 8) Which of the following is not a cause of profit variance?
Changes in sales price
Changes in sales mix
Changes in sales volume
All of the above are causes of profit variance.
Question 15.15. (TCO 9) A static budget is appropriate for _____.
variable overhead costs
direct materials costs
fixed overhead costs
None of the above
Question 16.16. (TCO 9) If the activity level increases 10%, total variable costs will _____.
remain the same
increase by more than 10%
decrease by less than 10%
increase 10%
Question 17.17. (TCO 9) Using the high-low method, what is the unit variable cost for the following information?
Month
Miles
Total Cost
January
80,000
$96,000
February
50,000
$80,000
March
70,000
$94,000
April
90,000
$130,000
$1.44
$1.25
$1.60
$1.50
Question 18.18. (TCO 10) Which of the following statements regarding budget reports is incorrect? (Points : 5)
The cost of budget reports should not outweigh the benefits.
Budget reports are used for planning, control, and information.
Reports prepared for upper management typically have fewer details than reports prepared for lower level managers.
Reports are prepared more frequently for upper management than for lower level managers.