Question
20.20. Variable costs will generally be relevant for decision making because
they: (Points : 2)

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
21.21. 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): (Points : 2)

a.
$952.94.

b.
$909.00.

c.
$936.67.

d.
$971.25.

Question
22.22. To make a decision whether to accept or reject a special sales order,
managers need critical information about all the following except: (Points : 2)

a.
Relevant
costs.

b.
Prior
period operating costs.

c.
Any
opportunity costs.

d.
The
strategic, competitive environment of the firm.

Question
23.23. Accounting makes all of the following contributions to the capital
budgeting process except: (Points : 2)

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
24.24. 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: (Points : 2)

a.
Competitive
pricing.

b.
Predatory
pricing.

c.
Cost-benefit
pricing.

d.
Variable
pricing.

Question
25.25. 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: (Points : 2)

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
26.26. In a sell-or-process-further decision, joint production costs: (Points :
2)

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
27.27. 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 %. (Points : 2)

a.
15%.

b.
27%.

c.
36%.

d.
43%.

e.
58%.

Question
28.28. 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? (Points : 2)

a.
$72,000.

b.
$96,000.

c.
$108,000.

d.
$112,000.

e.
$120,000.

Question
29.29. A flexible-budget variance measures the impact on short-term operating
profit of: (Points : 2)

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
30.30. 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: (Points : 2)

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
31.31. Operational control systems can be distinguished from financial control
systems: (Points : 2)

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
32.32. The goals of coordinating manufacturing processes, reducing the amount
of inventory, and improving overall productivity is particularly important in
a: (Points : 2)

a.
Standard
cost system.

b.
Just-in-time
system.

c.
Normal
costing system.

d.
Activity
based costing system.

e.
Total
quality management system.

Question
33.33. Traditional financial control systems have recently been criticized
because: (Points : 2)

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
34.34. 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: (Points : 2)

a.
$15,000.

b.
$40,000.

c.
$63,000.

d.
$78,000.

e.
$105,000.

Question
35.35. 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: (Points : 2)

a.
$4,000
underapplied.

b.
$7,000
overapplied.

c.
$10,000
overapplied.

d.
$11,000
underapplied.

e.
$14,000
underapplied.

Question
36.36. SBUs that generate revenues and incur the major portion of the cost for
producing those revenues are: (Points : 2)

a.
Revenue
centers.

b.
Contribution
centers.

c.
Profit
centers.

d.
Cost
centers.

Question
37.37. The common factor among control systems in hiring practices, promotion
policies, and strategic performance measurement is: (Points : 2)

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
38.38. Which one of the following is a drawback of decentralization? (Points :
2)

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
39.39. The balanced scorecard measures the SBU’s performance in all of the
following areas except: (Points : 2)

a.
Learning
and growth.

b.
Managerial
performance.

c.
Customer
satisfaction.

d.
Internal
business processes.

e.
Accounting
and tax compliance.

Question
40.40. Other things being equal, income computed by the variable costing method
will exceed that computed by the full costing method if: (Points : 2)

a.
Units
produced exceed units sold.

b.
Units
sold exceed units produced.

c.
Fixed
manufacturing costs, increase.

d.
Variable
manufacturing costs increase.

Question
41.41. The contribution by profit center (CPU) expands the contribution margin
income statement by distinguishing: (Points : 2)

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
42.42. Which one of the following refers to the firm’s ability to pay its
current operating expenses and maturing debt? (Points : 2)

a.
Discounted
cash flow.

b.
Liquidity.

c.
Earnings
base.

d.
Profitability.

e.
Purchasing
power.

Question
43.43. Salary is: (Points : 2)

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
44.44. 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? (Points :
2)

a.
$(50,000).

b.
$170,000.

c.
$150,000.

d.
$0.

e.
Cannot
be determined from the information given.

Question
45.45. The objectives of management compensation, when compared to the
objectives used to develop performance measurement systems, are: (Points : 2)

a.
More
numerous.

b.
Less
specific.

c.
Consistent
in their objectives.

d.
Significantly
broader in scope.

e.
More
specific.

Question
46.46. Jackson Supply Company has a 2 to 1 current ratio. This ratio would
increase to more than 2 to 1 if the company: (Points : 2)

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
47.47. In management compensation, the use of the balanced scorecard achieves:
(Points : 2)

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
48.48. 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?
(Points : 2)

a.
$3.25.

b.
$3.75.

c.
$4.00.

d.
$4.50.

e.
$5.00.

Question 49.49.
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 current
ratio for 2013 is: (Points : 2)

a.
1.8

b.
2.0

c.
3.9

d.
4.7

Question
50.50. 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): (Points : 2)

a.
11.2

b.
12.7

c.
13.7

d.
14.9