Question 1: Variable costs will generally be relevant for decision making because they:
a. Differ between options.
b. Are volume-based.
c. Have not been committed and differ between options.
d. Differ between options and have been committed.
e. Measure opportunity cost.
Question 2: CalcuCo hired Effner& Associates to design a new computer-aided manufacturing facility. The new facility was designed to produce 300 computers per month. The variable costs for each computer are $660 and the fixed costs total $74,700 per month. The average cost per unit, if the facility normally expects to operate at eighty-five percent of capacity, is calculated to be (round to nearest cent):
a. $952.94.
b. $909.00.
c. $936.67.
d. $971.25.
Question 3: To make a decision whether to accept or reject a special sales order, managers need critical information about all the following except:
a. Relevant costs.
b. Prior period operating costs.
c. Any opportunity costs.
d. The strategic, competitive environment of the firm.
Question 4: Accounting makes all of the following contributions to the capital budgeting process except:
a. The theoretical development of appropriate decision models.
b. Linkage of capital investment projects to the organization's Balanced Scorecard (BSC).
c. Conducting post-audits of capital investment decisions.
d. Generation of relevant (i.e., cash flow) data for investment-analysis purposes.
e. Performing sensitivity or "what-if" analysis of proposed capital investments.
Question 5: The Robinson-Patman Act, administered by the U.S. Federal Trade Commission, addresses pricing that could substantially damage the competition in an industry. This pricing is called:
a. Competitive pricing.
b. Predatory pricing.
c. Cost-benefit pricing.
d. Variable pricing.
Question 6: Given the same total cash flow returns (CFRs), the internal rate of return (IRR) method of capital budgeting would favor a proposal having yearly CFRs that were:
a. Even.
b. Uneven.
c. Heavier towards the end of a proposal's life.
d. Heavier towards the beginning of a proposal's life.
Question 7: In a sell-or-process-further decision, joint production costs:
a. Are irrelevant to the decision.
b. Should be allocated to outputs on the basis of relative sales dollars.
c. Should be allocated to outputs on the basis of relative physical units.
d. Cannot be allocated to products for financial reporting purposes.
Question 8: Carmino Company is considering an investment in equipment that will generate an after-tax income of $6,000 for each year of its four-year life. The asset has no salvage value. The firm is in the 40% tax bracket. The net book value (NBV) of the investment at the beginning of each year will be as follows:
a. Year 1 = $30,000
b. Year 2 = 15,000
c. Year 3 = 7,500
d. Year 4 = 3,750
Calculate this asset's book (accounting) rate of return on average investment, which is defined as a simple average of the average book value for each of the four years. Round the final answer to the nearest whole %.
a. 15%.
b. 27%.
c. 36%.
d. 43%.
e. 58%.
Question 9: Pique Corporation wants to purchase a new machine for $300,000. Management predicts that the machine can produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Pique's combined income tax rate is 40%. Management requires a minimum after-tax rate of return of 10% on all investments.
What is the net after-tax cash inflow in Year 1 from the investment?
a. $72,000.
b. $96,000.
c. $108,000.
d. $112,000.
e. $120,000.
Question 10: A flexible-budget variance measures the impact on short-term operating profit of:
a. Changes in sales volume.
b. Changes in output during the period.
c. Differences in sales mix-budgeted versus actual.
d. Selling price and cost differences-actual versus budgeted.
e. Selling price, but not cost differences-actual versus budgeted.
Question 11: The difference between total variable overhead cost incurred and the standard variable overhead cost based on the actual quantity of the cost driver used to apply variable overhead is the:
a. Total variable overhead variance.
b. Variable overhead spending variance.
c. Variable overhead rate variance.
d. Variable overhead efficiency variance.
e. Variable overhead flexible-budget variance.
Question 12: Operational control systems can be distinguished from financial control systems:
In the time horizon: financial-control systems have a long-term perspective.
a. Because they focus on the control of basic business processes.
b. Because such systems rely on the use of flexible, not static, budgets.
c. Because they focus on explaining the total operating income variance for a period.
d. Because they do not include nonfinancial performance indicators.
Question 13: The goals of coordinating manufacturing processes, reducing the amount of inventory, and improving overall productivity is particularly important in a:
a. Standard cost system.
b. Just-in-time system.
c. Normal costing system.
d. Activity based costing system.
e. Total quality management system.
Question 14: Traditional financial control systems have recently been criticized because:
a. They use flexible, not static, budgets.
b. They generally lead to goal-congruent behavior on the part of managers.
c. They focus more in improving basic business processes than short-term financial results.
d. They fail to incorporate nonfinancial performance indicators into the evaluation process.
Question 15: In September, Larson Inc. sold 40,000 units of its only product for $240,000 and incurred a total cost of $225,000, of which $25,000 is fixed costs. The flexible budget for September showed total sales of $300,000. Among variances of the period were: total variable cost flexible-budget variance, $8,000U; total flexible-budget variance, $63,000U; and, sales volume variance, in terms of contribution margin, $27,000U
The actual amount of operating income earned in September was:
a. $15,000.
b. $40,000.
c. $63,000.
d. $78,000.
e. $105,000.
Question 16: Bonehead Co. has the following factory overhead costs:
Standard Overhead Applied to this Period's Production = $72,500
Flexible Budget for Overhead Based on Output (Units Produced) = 65,000
Total Budgeted Overhead in the Master (Static) Budget = 86,000
Actual Total Overhead Cost Incurred During the Period = 76,000
The total underapplied or overapplied factory overhead for Bonehead Co. for the period is:
a. $4,000 underapplied.
b. $7,000 overapplied.
c. $10,000 overapplied.
d. $11,000 underapplied.
e. $14,000 underapplied.
Question 17: SBUs that generate revenues and incur the major portion of the cost for producing those revenues are:
a. Revenue centers.
b. Contribution centers.
c. Profit centers.
d. Cost centers.
Question 18: The common factor among control systems in hiring practices, promotion policies, and strategic performance measurement is:
a. Management sets expectations for desired employee performance.
b. Employee-determined expectations for desired employee performance.
c. Coordination of activities.
d. Communication of results.
Question 19: Which one of the following is a drawback of decentralization?
a. Uses local knowledge only.
b. May hinder coordination among independent SBUs.
c. Provides less effective operational control.
d. May affect goal congruence.
e. Offers an inefficient method of performance evaluation.
Question 20: The balanced scorecard measures the SBU's performance in all of the following areas except:
a. Learning and growth.
b. Managerial performance.
c. Customer satisfaction.
d. Internal business processes.
e. Accounting and tax compliance.
Question 21: Other things being equal, income computed by the variable costing method will exceed that computed by the full costing method if:
a. Units produced exceed units sold.
b. Units sold exceed units produced.
c. Fixed manufacturing costs, increase.
d. Variable manufacturing costs increase.
Question 22: The contribution by profit center (CPU) expands the contribution margin income statement by distinguishing:
a. Variable and fixed costs.
b. Short-term and long-term fixed costs.
c. Controllable and non-controllable fixed costs.
d. Noncontrollable and untraceable fixed costs.
e. Net income and contribution margin.
Question 23: Which one of the following refers to the firm's ability to pay its current operating expenses and maturing debt?
a. Discounted cash flow.
b. Liquidity.
c. Earnings base.
d. Profitability.
e. Purchasing power.
Question 24: Salary is:
a. A fixed payment that includes a bonus.
b. A fixed payment that includes benefits.
c. A benefit that includes a bonus.
d. A fixed payment.
Question 25: A company had income of $50,000 using variable costing for a given period. Beginning and ending inventories for that period were 80,000 units and 90,000 units, respectively. If the fixed overhead application rate were $10.00 per unit, what would operating income have been using full costing?
a. $(50,000).
b. $170,000.
c. $150,000.
d. $0.
e. Cannot be determined from the information given.
Question 26: The objectives of management compensation, when compared to the objectives used to develop performance measurement systems, are:
a. More numerous.
b. Less specific.
c. Consistent in their objectives.
d. Significantly broader in scope.
e. More specific.
Question 27: Jackson Supply Company has a 2 to 1 current ratio. This ratio would increase to more than 2 to 1 if the company:
a. Purchased a marketable security for cash.
b. Wrote off an uncollectible receivable.
c. Sold merchandise on account that earned a normal gross margin.
d. Purchased inventory on account.
Question 28: In management compensation, the use of the balanced scorecard achieves:
a. Fairness.
b. Alignment of manager's incentives and the organization's strategy.
c. The desired ethical environment.
d. Revenue generation and cost control.
Question 29: During October, Rover Industries produced 35,000 units of product with costs as follows:
DM = $ 84,000
DL = 43,000
Variable O/H = 13,000
Fixed O/H = 147,000
Total =$ 287,000
What is Rover's unit cost for October, calculated on the variable costing basis?
a. $3.25.
b. $3.75.
c. $4.00.
d. $4.50.
e. $5.00.
Question 30: The King Mattress Company had the following operating results for 2012-2013. In addition, the company paid dividends in both 2012 and 2013 of $60,000 per year and made capital expenditures in both years of $30,000 per year. The company's stock price in 2012 was $8 and $7 in 2013. The industry average earnings multiple for the mattress industry was 9 in 2013 and the free cash flow and sales multiples were 18 and 1.5, respectively. The company is publicly owned and has 1,200,000 shares of outstanding stock at the end of 2013.
Balance Sheet, December 31
2013 2012
Cash $ 340,000 $ 100,000
Accounts Receivable 350,000 400,000
Inventory 250,000 300,000
Total Current Assets $ 940,000 $ 800,000
Long Lived Assets 1,080,000 1,100,000
Total Assets $ 2,020,000 $ 1,900,000
Current Liabilities $ 200,000 $ 300,000
Long-Term Liabilities 600,000 500,000
Stockholder's Equity 1,220,000 1,100,000
Total Liabilities & Equity $ 2,020,000 $ 1,900,000
Income Statement for the Year Ended December 31
Sales $ 4,750,000 $ 4,500,000
Cost of Sales 4,100,000 4,000,000
Gross Margin $ 650,000 $ 500,000
Operating Expenses 350,000 400,000
Operating Income $ 300,000 $ 100,000
Taxes 120,000 40,000
Net Income $ 180,000 $ 60,000
Cash Flow from Operations
Net Income $ 180,000 $ 60,000
Plus Depreciation Expense 50,000 50,000
+Decrease (-Inc) in A/T and Inventory 100,000 - 0 -
+Increase (-Dec) in Current Liabilities (100,000) - 0 -
Cash Flow from Operations $ 230,000 $ 110,000
Question 31: The King Mattress Company had the following operating results for 2012-2013. In addition, the company paid dividends in both 2012 and 2013 of $60,000 per year and made capital expenditures in both years of $30,000 per year. The company's stock price in 2012 was $8 and $7 in 2013. The industry average earnings multiple for the mattress industry was 9 in 2013 and the free cash flow and sales multiples were 18 and 1.5, respectively. The company is publicly owned and has 1,200,000 shares of outstanding stock at the end of 2013.
Balance Sheet, December 31
2013 2012
Cash $ 340,000 $ 100,000
Accounts Receivable 350,000 400,000
Inventory 250,000 300,000
Total Current Assets $ 940,000 $ 800,000
Long Lived Assets 1,080,000 1,100,000
Total Assets $ 2,020,000 $ 1,900,000
Current Liabilities $ 200,000 $ 300,000
Long-Term Liabilities 600,000 500,000
Stockholder's Equity 1,220,000 1,100,000
Total Liabilities & Equity $ 2,020,000 $ 1,900,000
Income Statement for the Year Ended December 31
Sales $ 4,750,000 $ 4,500,000
Cost of Sales 4,100,000 4,000,000
Gross Margin $ 650,000 $ 500,000
Operating Expenses 350,000 400,000
Operating Income $ 300,000 $ 100,000
Taxes 120,000 40,000
Net Income $ 180,000 $ 60,000
Cash Flow from Operations
Net Income $ 180,000 $ 60,000
Plus Depreciation Expense 50,000 50,000
+Decrease (-Inc) in A/T and Inventory 100,000 - 0 -
+Increase (-Dec) in Current Liabilities (100,000) - 0 -
Cash Flow from Operations $ 230,000 $ 110,000
The inventory turnover ratio for 2013 is (rounded):
a. 11.2
b. 12.7
c. 13.7
d. 14.9