Acct 311 Final (Multiple choice Questions)

C

A company should accept for investment all positive net present value​ (NPV) investment alternatives when which of the following conditions is​ true?

A. The company has extremely limited resources for capital investment.

B. The company has excess cash on its balance sheet.

C. The company has virtually unlimited resources for capital investment.

D. The company has limited resources for capital investment but is planning to issue new equity to finance additional capital investment.

A

Which of the following statements is true if the net present value​ (NPV) of a project is​ -$4,000 (negative​ $4,000) and the required rate of return is​ 5%? ​(IRR = internal​ rate-of-return)

A. The​ project's IRR is less than​ 5%.

B. The required rate of return is lower than the IRR.

C. The NPV assumes cash flows are reinvested at the IRR.

D. The NPV would be positive if the IRR was equal to​ 5%.

D

What is a strength of the payback​ method?

A. Indicates whether or not the project will earn the​ company's minimum required rate of return.

B. ​Simple, easy to​ understand, and considers profitability.

C. Incorporates the time value of money and the​ project's net cash flows over its entire​ life, and computes the​ project's unique rate of return.

D. Simple and easy to understand and is a handy method when screening many​ proposals, particularly when predicted cash flows in later years are highly uncertain.

A

What is a weakness of the payback​ method?

A. Neglects the time value of money and the cash flows after the payback period.

B. Cannot be used when​ management's required rate of return varies from one period to the next.

C. Ignores the time value of money and does not consider the cash flows for a project.

D. Cannot be used for projects with unequal periodic cash flows.

B

In situations where the required rate of return is not constant for each year of the​ project, it is advantageous to use​ ________.

A. the nominal rate-of-return method

B. the net present value method

C. the projected income method

D. the internal rate-of-return method

C

Which of the following is a limitation of AARR​ method?

A. It is difficult to compare projects as its result is expressed in dollars and not in percentage terms.

B. It does not track initial investment.

C. It does not consider time value of money.

D. It does not consider income earned throughout a​ project's expected useful life.

A

Net initial investment includes​ ________.

A. cash outflow to purchase new​ equipment, cash outflow for working​ capital, and

after-tax cash inflow from disposal of the old equipment

B. cash outflow to purchase new​ equipment, cash outflow for working​ capital, and depreciation on new equipment

C. cash outflow to purchase new​ equipment, depreciation on new​ equipment, and

after-tax cash inflow from disposal of the old equipment

D. depreciation on new​ equipment, cash outflow for working​ capital, and

after-tax cash inflow from disposal of the old equipment

A

What is a target cost per​ unit?

A. The estimated​ long-run cost per unit of a product​ (or service)​ that, when sold at the target​ price, enables the company to achieve the targeted operating income per unit.

B. The estimated​ short-run cost per unit of a product​ (or service)​ that, when sold at the target​ price, enables the company to achieve the targeted operating income per unit.

C. A cost that customers perceive as adding​ value, or​ utility, to a product or service. The added charge for the value enables the company to achieve the targeted operating income.

D. The estimated cost for a product that potential customers are willing to pay.

C

"It is not important for a company to distinguish between cost incurrence and​ locked-in costs." Do you​ agree? Explain.

A. ​Yes, both costs are easy to alter or reduce so there is no need to distinguish between them.

B. ​No, because the costs are presented differently in the income statement so you must distinguish between them.

C. ​No, because it is difficult to alter or reduce costs that have already been locked in so you need to distinguish between them.

B

How can managers gain insight into the causes of a​ sales-volume variance by subdividing the components of this​ variance?

A. Managers can gain substantial insight into the sales volume variance by subdividing it into the ​sales-quality variance and​ market-size variance. The​ sales-quality variance measures the difference between the actual cost of direct materials and budgeted cost of direct​ materials, while the​ market-size variance is the difference between the actual total market size in units and the budgeted market size in units.

B. Managers can gain substantial insight into the sales volume variance by subdividing it into the​ sale-mix variance and the sales quantity variance. The sales mix variance shows the difference between budgeted contribution margin for the actual sales​ mix, and the budgeted contributed margin for the budgeted sales​ mix, where the sales quantity variance identifies the difference between the budgeted contribution margin based on actual units sold or all products in the budgeted mix and the contribution margin in the static budget.

C. Managers can gain substantial insight into the sales volume variance by subdividing it into the ​market-share variance and​ sales-quality variance. The​ market-share variance is the reporting and analysis of revenues earned from customers and the percentage of​ market-share, where the​ sales-quality variance measures the difference between the actual cost of direct materials and budgeted cost of direct materials.

B

How can the concept of a composite unit be used to explain why an unfavorable total​ sales-mix variance of contribution margin​ occurs?

A. The total​ sales-mix variance arises from differences in the budgeted contribution margin of the budgeted and static sales mix. The composite unit concept enables the effect of all the product changes to be summarized in a grouped intuitive number by using weights based on the mix of all units in the actual and budgeted mix of products sold.

B. The total​ sales-mix variance arises from differences in the budgeted contribution margin of the actual and budgeted sales mix. The composite unit concept enables the effect of individual product changes to be summarized in a single intuitive number by using weights based on the mix of individual units in the actual and budgeted mix of products sold

B

Select the statement that explains why a favorable​ sales-quantity variance occurs.

A. A favorable​ sales-quantity variance arises because the budgeted units for all products sold exceed the static units of all products sold.

B. A favorable​ sales-quantity variance arises because the actual units of all products sold exceed the budgeted units of all products sold.

C. A favorable​ sales-quantity variance arises because the budgeted units of all products sold exceed the actual units of all products sold.

D. A favorable​ sales-quantity variance arises because the actual​ sales-mix percentage exceeds the budgeted​ sales-mix percentage.

A, D

How can the​ sales-quantity variance be decomposed​ further? ​(Select all that​ apply.)

A. The​ sales-quantity variance can be decomposed into a​ market-size variance​ (which arises when the actual total market size in units is different from the budgeted market size in​ units).

B. The​ sales-quantity variance can be decomposed into a direct materials mix variance​ (which arises when the actual cost of direct materials is different from budgeted cost of direct​ materials).

C. The​ sales-quantity variance can be decomposed into a​ sales-mix variance​ (which arises when the actual number of units sold is different from budgeted units of all products to be​ sold).

D. The​ sales-quantity variance can be decomposed into a market share variance​ (which arises when the actual market share of a company is different from its budgeted market​ share).

A

The​ actual contribution margin per unit​ will impact the following sales variance:

A. ​Flexible-budget variance

B. ​Market-share variance

C. ​Sales-quantity variance

D. ​Market-size variance

True

T or F: Managers are more likely to manage measures evaluated to make their performance look good and gain more rewards

False

T or F: Excessive focus on short-term financial performance enables the firm to promote sustainable long term growth

Balanced Scorecard

This can be used to alleviate such managerial myopia

True

T or F: Given the knowledge-based economy with the prevalence of intangible assets, traditional financial measures (e.g., ROA, EPS) may not well reflect the firm performance or value

True

T or F: Not want to add too many performance measures in addition to the financial measures already used because executives are already overloaded with lots of information

True

T or F: Measures should be integrated with current financial measures in a meaningful way—measures should be able to collectively illustrate what/how well the firm is doing.

Financial

Fourth of the four perspectives in Balanced Scorecard. Ex: Operating income from price recovery; Operating income from growth

Customer

3rd of the four perspectives in Balanced Scorecard. “To achieve our financial goals, how should we appear to our ________?”

Internal Business Process

Second of the four perspectives in Balanced Scorecard. Ex: Greater efficiency in their work and better implementation of strategies

Learning & Growth

First of the four perspectives in Balanced Scorecard. Ex: Employee satisfaction and retention

Learning & Growth, Internal Business Process, Customer, Financial Performance

What are the four Balanced Scorecard perspectives in order? (Hint: LICF)

True

T or F: Balanced Scorecard used to focus on short-term financial performance only, but now considering long-term non-financial performance too

casual, motivates, sustainable

Benefits from using BSC:

1. Promotes __________ thinking and explains strategies.

2. ___________ managers to consider all four areas in achieving the goals

   1. Helps managers to be focused on important targets for ___________ long-term success

intangible assets, operating cycle

Non-financial measures are more useful for firms with large amounts of _________ _______, and firms with a long __________ _______.

free

(free)

Cautions when using BSC:

1. Do not assume precise casual links

2. Do not expect managers to improve on all measures at the same time

3. Limit the number of measures in each category

4. Hard to get it perfect at first—it can evolve over time and change with strategies.

variable cost per unit of the product

Which of the following is not a qualitative factor that Atlas Manufacturing should consider when deciding whether to buy or make a part used in manufacturing their product?

quality of the outside producer’s product

potential loss of trade secrets

manufacturing deadlines and special orders

variable cost per unit of the product

y = 1.30x

Write a linear cost function equation for each of the following conditions. Use y for estimated costs and x for activity of the cost driver.

Direct materials cost is 1.30 per pound.

y = 6500

Write a linear cost function equation for each of the following conditions. Use y for estimated costs and x for activity of the cost driver.

Total cost is fixed at 6500 per month regardless of the number of units produced

y = 40 + 3x

Write a linear cost equation. Auto rental has a fixed fee of 40 per day plus 3 per mile driven

y = 1600 + 14x

Write a linear cost function equation for each of the following conditions. Use y for estimated costs and x for activity of the cost driver.

Machine operating costs include 1600 of maintenance per month, and 14 of coolant usage costs for each day the machinery is in operation

B

​"High correlation between two variables means that one is the cause and the other is the​ effect." Do you​ agree? Explain.

(just enter letter)

A. ​Yes, high correlation always means the variables have a cause and effect relationship.

B. ​No, you must also consider economic plausibility before determining there is a cause and effect relationship.

C. ​No, high correlation means there is no cause and effect relationship between variables.

D. ​No, there must be a contractual arrangement to have a cause and effect relationship.

B

Three criteria for evaluating cost functions and choosing cost drivers​ are:

(choose letter)

A. Economic​ plausibility, goodness of​ fit, the speed with which cost estimates can be determined

B. Economic​ plausibility, goodness of​ fit, slope of regression line

C. Goodness of​ fit, slope of regression​ line, the speed with which cost estimates can be determined

D. None of the above

decline, increase, learning, better

A learning curve is a function that measures how labor-hours per unit _______ as units of production _________ because workers are _________ and becoming ________ at their jobs

cumulative average, incremental unit

Two models that can be used when incorporating learning into the estimation of cost functions are (hint: C and I)

C

When comparing the operating incomes between absorption costing and variable​ costing, and ending finished inventory exceeds beginning finished​ inventory, it may be assumed that​ ________.

(enter letter)

A. there is a favorable production-volume variance

B. sales decreased during the period

C. absorption costing operating income exceeds variable costing operating income

D. variable cost per unit is more than fixed cost per unit

D

Which of the following​ is not a qualitative factor that Atlas Manufacturing should consider when deciding whether to buy or make a part used in manufacturing their​ product?

(enter letter)

A. Quality of the outside​ producer's product.

B. Potential loss of trade secrets.

C. Manufacturing deadlines and special orders.

D. Variable cost per unit of the product.

B

Why might a​ flexible-budget analysis be more informative than a​ static-budget analysis?

(just enter letter)

A. The flexible budget is the hypothetical budget that is prepared at the start of the budget period. Managers use this budget as a goal for the period.

B. A​ flexible-budget analysis enables a manager to distinguish how much of the difference between an actual result and a budgeted amount is due to​ (a) the difference between actual and budgeted output​ levels, and​ (b) the difference between actual and budgeted selling​ prices, variable​ costs, and fixed costs.

C. A flexible budget is based on the level of output planned at the start of the budget period. It is developed around a single planned output level.

D. None of the above.

C

What is the key difference between a static budget and a flexible​ budget?

A. A static budget is based on the level of output at the beginning of the​ period; a flexible budget is based on the actual unit prices in the budget period.

B. A flexible budget is based on the level of output at the beginning of the​ period; a static budget is based on the actual output level in the budget period.

C. A static budget is based on the level of output at the beginning of the​ period; a flexible budget is based on the actual output level in the budget period.

D. None of the above.

D

What is the definition of a master​ budget?

(JUST ENTER LETTER)

A. A master budget is a mathematical representation of the relationships among operating​ activities, financing​ activities, and other factors that affect the company.

B. A master budget is a budget that is always available for a specified future period. It is created by continually adding a​ month, quarter, or year to the period that just ended.

C. A master budget is a budget that focuses on the budgeted cost of the activities necessary to produce and sell products and services.

D. A master budget is a budget that expresses​ management's operating and financial plans for a specified period and includes a set of budgeted financial statements.

B

​"Strategy, plans, and budgets are unrelated to one​ another." Do you​ agree? Why?

A. Strategies and plans are related and affect one another. Plans are formed based on the strategies of the company. Budgets are not impacted by the strategies and plans of a company. Budgets are solely based on the performance expectations for the period.

B. ​Strategy, plans, and budgets are interrelated and affect one another. Strategic analysis underlies both​ long-run and​ short-run planning. In​ turn, these plans lead to the formulation of budgets. Budgets provide feedback to managers about the likely effects of their strategic plans. Managers use this feedback to revise their strategic plans.  

C. ​Strategy, plans, and budgets are unrelated to one another. Strategies look at the opportunities in the marketplace. A company creates plans to determine what it will accomplish in the​ long-run and​ short-run. Budgets provide a blueprint as to how the company will perform in the coming period.

D. None of the above.

D

The operating budget process generally concludes with the preparation of the​ ________.

A. production budget

B. balance sheet

C. cash flow statement

D. budgeted income statement

D

In which order are the following​ developed? First to​ last:

A​ = Production budget

B​ = Direct materials costs budget

C​ = Budgeted income statement

D​ = Revenues budget

A. CABD

B. DCAB

C. ABDC

D. DABC

A

What is broad​ averaging?

(just enter letter)

A. Broad averaging describes a costing approach that uses broad averages for assigning the cost of resources uniformly to cost objects.

B. Broad averaging describes a costing system that uses direct costs to assign the cost of resources directly to cost objects.

C. Broad averaging describes the method of calculating the average fixed manufacturing overhead cost of each unit produced or service performed.

D. Broad averaging describes a costing approach that allocates indirect costs to cost objects based on the budgeted average indirect cost rates multiplied by the budgeted quantities of the​ cost-allocation bases.

C

What is a possible consequence of using broad averaging to calculate unit​ costs?

A. By ignoring the allocation of indirect costs to the cost​ objects, broad averaging can lead to product overcosting.

B. Broad averaging does not take into account variable cost​ components, and​ therefore, this method is unable to provide meaningful data when estimating costs across various levels of activity.

C. By ignoring the variation in the consumption of resources by different cost​ objects, broad averaging can lead to inaccurate product costing.

D. Broad​ averaging, which ignores actual average indirect cost​ rates, can lead to product overcosting or product undercosting

True

T or F: Overcosting may result in competitors entering a market and taking market share for products that a company erroneously believes are​ low-margin or even unprofitable. Undercosting may result in companies selling products on which they are in fact losing​ money, when they erroneously believe them to be profitable.

A

The three guidelines for refinement​ include:

A.

1. Classify as many of the total costs as direct costs as is economically feasible.

2. Expand the number of indirect cost pools until each of these pools is more homogenous.

3. Use the​ cause-and-effect criterion, when​ possible, to identify the​ cost-allocation base for each​ indirect-cost pool.

B.

1. Set cost reduction targets in terms of reducing the cost per unit of a​ cost-allocation base in different activity areas.

2. Perform an analysis of the factors that cause costs to be incurred​ (cost drivers) in order to identify opportunities for improving the way work is done.

3. Evaluate whether particular​ nonvalue-added activities can be reduced or eliminated.

B

Activity based costing system differs from traditional costing systems in the treatment of​ ________.

(enter letter)

A. direct material costs

B. indirect costs

C. direct labor costs

D. prime costs

C

Why is it important to classify costs into a cost​ hierarchy?

B. It is important to classify costs into a cost hierarchy because it allows managers to evaluate the importance of costs in the manufacturing process. If costs were not classified into a cost​ hierarchy, managers would be unable to assess the importance of each cost incurred in manufacturing the product.

C. It is important to classify costs into a cost hierarchy because costs in different cost pools relate to different​ cost-allocation bases and not all​ cost-allocation bases are unit level. If costs were not classified into a cost​ hierarchy, the alternative would be to consider all costs as​ unit-level costs, leading to misallocation of those costs that are not​ unit-level costs.

D

​________ is an example of an output unit-level cost in the cost hierarchy.

A. Factory rent expense

B. Building security costs

C Top management compensation costs

D. Machine depreciation

D

With traditional costing​ systems, products manufactured in small batches and in small annual volumes may be​ ________ because batch-related and product-sustaining costs are assigned using unit-related drivers.

A. ignored

B. overcosted

C. fairly costed

D. undercosted

C

Distinguish direct costs from indirect costs.

A. Direct costs include the acquisition costs of all materials that eventually become part of the cost object and can be traced to the cost object in an economically feasible way while indirect costs include compensation of all manufacturing labor that can be traced to the cost object in an economically feasible way.

B. Direct costs are historical or past costs incurred while indirect costs are predicted or forecasted costs.

C. Direct costs are related to the particular cost object and can be traced to that cost object in a​ cost-effective way while indirect costs are related to the particular cost object but cannot be traced to that cost object in a​ cost-effective way.

free

(free) A variable cost changes in total in proportion to changes in the related level of total activity or​ volume, such as a sales commission that is a percentage of each sales revenue dollar. A fixed cost remains unchanged in total for a given time​ period, despite wide changes in the related level of total activity or​ volume, such as a fixed annual leasing cost of a machine.

D

Explain why unit costs must often be interpreted with caution.

(letter)

A. Units costs are related to a particular cost​ object, but cannot be traced to it in an economically feasible way. The assignment of units costs is much more subjective than the assignment of direct​ costs, and​ therefore, unit cost information should be interpreted with caution.

D. Unit costs are computed by dividing some amount of total costs by the related number of units. In many​ cases, the total costs include a fixed cost that will not change despite changes in the number of units.​ Therefore, it can be misleading to multiply the unit cost by activity or volume change to predict changes in total costs at different activity or volume levels.

D

Distinguish between inventoriable costs and period costs.

(letter)

B. Inventoriable costs include material costs and are capitalized as assets to the company until the items are sold. Period costs include labor and overhead costs and are expensed as incurred. Period costs are reported in the income statement within the cost of goods sold account.

D. Inventoriable costs are all costs of a product that are considered as assets in the balance sheet when they are incurred and that become cost of goods sold when the product is sold. Period costs are all costs in the income statement other than cost of goods sold. Period costs are treated as expenses of the accounting period in which they are incurred because they are expected to not benefit future periods.