Final Exam

Question 1

42. Feedback regarding previous actions may affect
    a. future predictions.
    b. implementation of the decision.
    C. the decision model.
    d. all of the above

Answer 1

d. all of the above

Question 2

43. Place the following steps from the five-step decision process in order:
    A = Make predictions about future costs
    B = Evaluate performance to provide feedback
    C = Implement the decision
    D = Choose an alternative

a. DCAB
b. CDAB
c. ADCB
d. DCBA

Answer 2

c. ADCB

Question 3

The formal process of choosing between alternatives is known as a:
a relevant model.
b. a decision model.
с. an alternative model.
d. a prediction model

Answer 3

b. a decision model

Question 4

For decision making, a listing of the relevant costs:

a. will help the decision maker concentrate on the pertinent data
b. will only include future costs.
c. will only include costs that differ among alternatives.
d. should include all of the above.

Answer 4

d. should include all of the above

Question 5

Sunk costs

A. Are relevant
B. Are differential
C. Have future implications
D. Are ignored when evaluating alternatives

Answer 5

D. Are ignored when evaluating alternatives

Question 6

A computer system installed last year is an example of:

A. A sunk cost
B. A relevant cost
C. A differential cost
D. An avoidable cost

Answer 6

A. A sunk cost

Question 7

Costs that CANNOT be changed by any decision made now or in the future are

A. Fixed costs
B. Indirect costs
C. Avoidable costs
D. Sunk costs

Answer 7

D. Sunk costs

Question 8

In evaluating different alternatives, it is useful to concentrate on

A. Variable costs
B. Fixed costs
C. Total costs
D. Relevant costs

Answer 8

D. Relevant costs

Question 9

Which of the following costs always differ among future alternatives?

A. Fixed costs
B. Historical costs
C. Relevant costs
D. Variable costs

Answer 9

C. Relevant costs

Question 10

Which of the following costs are never relevant in the decision-making process?

A. Fixed costs
B. Historical costs
C. Relevant costs
D. Variable costs

Answer 10

B. Historical costs

Question 11

Quantitative factors

A. Include financial information, but not no financial information
B. Can be expressed in monetary terms
C. Are always relevant when making decisions
D. Include employee morale

Answer 11

B. Can be expressed in monetary terms

Question 12

Qualitative factors

A. Generally are easily measured in quantitative terms
B. Are generally irrelevant for decision making
C. May include either financial or non financial information
D. Include customer satisfaction

Answer 12

D. Include customer satisfaction

Question 13

Historical costs are helpful

A. For making future predictions
B. For decision making
C. Because they are quantitative
D. With none of the above

Answer 13

A. For making future predictions

Question 14

When making decisions

A. Quantitative factors are the most important
B. Qualitative factors are the most important
C. Appropriate weight must be given to both quantitative and qualitative factors
D. Both quantitative and qualitative factors are unimportant

Answer 14

C. Appropriate weight must be given to both quantitative and qualitative factors

Question 15

Employee morale at Dos Santos Inc is very high. This type of information is known as

A. A qualitative factor
B. A quantitative factor
C. A non measurable factor
D. A financial factor

Answer 15

A. A qualitative factor

Question 16

Roberto owns a small body shop. His major costs include labor, parts and rent. In the decision making process, these costs are considered to be

A. Fixed
B. Qualitative factors
C. Quantitative factors
D. Variable

Answer 16

C. Quantitative factors

Question 17

One time only special order should only be accepted if

A. Incremental revenues exceed incremental costs
B. Differential revenues exceed variable costs
C. Incremental revenues exceed fixed costs
D. Total revenues exceed total costs

Answer 17

A. Incremental revenues exceed incremental costs

Question 18

When deciding to accept a one time special order from a wholesaler, management should do all except

A. Analyze product costs
B. Consider the special order’s impact on future prices of their product
C. Determine whether excess capacity is available
D. Verify past design costs for the product

Answer 18

D. Verify past design costs for the product

Question 19

When there is excess capacity, it makes sense to accept a one time special order for less than the current selling price when

A. Incremental revenues exceed incremental costs
B. Additional fixed costs must be incurred to accommodate the order
C. The company placing the order is in the same market segment as your current customers
D. It never makes sense

Answer 19

A. Incremental revenues exceed incremental costs

Question 20

The sum of all the costs incurred in a particular business function (for example, marketing) is called the

A. Business function cost
B. Full product cost
C. Gross product cost
D. Multi product cost

Answer 20

A. Business function cost

Question 21

The sum of all costs incurred in all business functions in the value chain (product design, manufacturing, marketing and customer service for example) is known as the

A. Business cost
B. Full product cost
C. Gross product cost
D. Multi product cost

Answer 21

B. Full product cost

Question 22

Problems that should be avoided when identifying relevant costs include all of the following except

A. Assuming all variable costs are relevant
B. Assuming all fixed costs are irrelevant
C. Using unit costs that do not separate variable and fixed components
D. Using total costs that separate variable and fixed components

Answer 22

D. Using total costs that separate variable and fixed components

Question 23

The BEST way to avoid misidentification of relevant costs is to focus on

A. Expected future costs that differ among the alternatives
B. Historical future costs
C. Unit fixed costs
D. Total unit costs

Answer 23

A. Expected future costs that differ among the alternatives

Question 24

Factors used to decide whether to outsource a part include

A. The supplier’s cost of direct materials
B. If the supplier is reliable
C. The original cost of equipment currently used for production of that part
D. Past design costs used to develop the current composition of the part

Answer 24

B. If the supplier is reliable

Question 25

Relevant costs of a make or buy decision include all except

A. Fixed salaries that will not be incurred if the part is outsourced
B. Current director material costs of the part
C. Special machinery for the part that has no resale value
D. Material handling costs that can be eliminated

Answer 25

C. Special machinery for the part that has no resale value

Question 26

Which of the following are risks of outsourcing the production of a part?

A. Unpredictable quality
B. Unreliable delivery
C. Unscheduled price increases
D. All of the above are risks of outsourcing

Answer 26

D. All of the above are risks of outsourcing

Question 27

Which of the following minimize the risks of outsourcing?

A. The use of short term contracts that specify price
B. The responsibility for on time delivery is now the responsibility of the supplier
C. Building close relationships with the supplier
D. All of the above minimize the risks of outsourcing

Answer 27

C. Building close relationships with the supplier

Question 28

88. When evaluating a make-or-buy decision, which of the following does NOT need to be considered?
    a. Alternative uses of the production capacity
    b. The original cost of the production equipment
    c. The quality of the supplier’s product
    d. The reliability of the supplier’s delivery schedule

Answer 28

b. The original cost of the production equipment

Question 29

89. For make-or-buy decisions, a supplier’s ability to deliver the item on a timely basis is considered
    a. a qualitative factor.
    b. a relevant cost.
    C. a differential factor.
    d. an opportunity cost.

Answer 29

a. a qualitative factor

Question 30

90. The incremental costs of producing one more unit of product include all of the following EXCEPT
    a. direct materials.
    b. direct labor.
    c. variable overhead costs.
    d. fixed overhead costs

Answer 30

d. fixed overhead costs

Question 31

92. Unit cost data can MOST mislead decisions by
    a. not computing fixed overhead costs.
    b. computing labor and materials costs only.
    c. computing administrative costs.
    d. not computing unit costs at the same output level

Answer 31

d. not computing unit costs at the same output leve

Question 32

91. Direct materials $40, direct labor $10, variable overhead costs $30, and fixed overhead costs $20. In the short term, the incremental cost of one unit is
    a. $30.
    b. $50.
    c. $80.
    d. $100

Answer 32

c. $180

Question 33

93. Schmidt Sewing Company incorporates the services of Deb’s Sewing. Schmidt purchases pre-cut dresses from Deb’s. This is primarily known as
    a. insourcing.
    b. outsourcing.
    c. relevant costing.
    d. sunk costing

Answer 33

b. outsourcing

Question 34

94. Pearce Sign Company manufactures signs from direct materials to the finished product. This is considered
    a. insourcing.
    b. outsourcing.
    c. relevant costing.
    d. sunk costing.

Answer 34

a. insourcing

Question 35

95. Which of the following would NOT be considered in a make-or-buy decision?
    a. Fixed costs that will no longer be incurred
    b. Variable costs of production
    C. Potential rental income from space occupied by the production area
    d. Unchanged supervisory costs

Answer 35

d. Unchanged supervisory costs

Question 36

101. Relevant costs in a make-or-buy decision of a part include
     a. setup overhead for the manufacture of the product using the outsourced part.
     b. currently used manufacturing capacity that has alternative uses.
     C. annual plant insurance costs that will remain the same.
     d. corporate office costs that will be allocated differently

Answer 36

b. currently used manufacturing capacity that has alternative uses

Question 37

102. If Horsley Corporation doesn’t use one of its limited resources in the best possible way, the lost contribution to income could be called
     a. a variable cost.
     b. a fixed cost.
     c. an opportunity cost.
     d. a sunk cost.

Answer 37

c. an opportunity cost

Question 38

103. When a firm has constrained capacity as opposed to surplus capacity, opportunity costs will be
     a. lower.
     b. the same.
     C. greater.
     d. it varies

Answer 38

c. greater

Question 39

104. Opportunity costs
     a. result in a cash outlay.
     b. only are considered when selecting among alternatives.
     C. are recorded in the accounting records.
     d. should be maximized for the best decision

Answer 39

b. only are considered when selecting among alternatives

Question 40

105. Opportunity cost(s)
     a. of a resource with excess capacity is zero.
     b. should be maximized by organizations.
     c. are recorded as an expense in the accounting records.
     d. are most important to financial accountants

Answer 40

a. of a resource with excess capacity is zero

Question 41

For make-or-buy decisions, relevant costs include
a. direct material costs plus direct labor costs.
b. incremental costs plus opportunity costs.
c. differential costs plus fixed costs.
d. incremental costs plus differential costs

Answer 41

b. incremental costs plus opportunity costs

Question 42

107. The opportunity cost of holding significant inventory includes
     a. the interest forgone on an alternative investment.
     b. additional insurance costs.
     c. additional storage costs.
     d. all of the above

Answer 42

a. the interest forgone on an alternative investment

Question 43

113. Determining which products should be produced when the plant is operating at full capacity is referred to as
     a. an outsourcing analysis.
     b. production scheduling analysis.
     c. a product-mix decision.
     d. a short-run focus decision

Answer 43

c. a product-mix decision

Question 44

Product mix decisions
a. have a long-run focus.
b. help determine how to maximize operating profits.
c. focus on selling price per unit.
d. are all of the above

Answer 44

b. help determine how to maximize operating profits

Question 45

115. Constraints may include
     a. the availability of direct materials in manufacturing.
     b. linear square feet of display space for a retailer.
     c. direct labor in the service industry.
     d. all of the above

Answer 45

d. all of the above

Question 46

116. For determining the best mix of products, the one with the LEAST amount of influence is
     a. the market price of the products.
     b. corporate office costs allocated to each product.
     c. the use of capacity resources.
     d. contribution margins

Answer 46

b. corporate office costs allocated to each product

Question 47

117. In product-mix decisions,
     a. always focus on maximizing total contribution margin.
     b. focus on the product with the greatest contribution margin per machine-hour.
     c. focus on the full costs of the product.
     d. never focus on the short-term, but include only long-term considerations

Answer 47

a. always focus on maximizing total contribution margin

Question 48

129. When deciding whether to discontinue a segment of a business, managers should focus
     on
     a. equipment used by that segment that could become idle.
     b. reallocation of corporate costs.
     C. how total costs differ among alternatives.
     d. operating income per unit of the discontinued segment

Answer 48

C. how total costs differ among alternatives

Question 49

130. When deciding whether to discontinue a segment of a business, relevant costs include all EXCEPT
     a. fixed supervision costs that can be eliminated.
     b. variable marketing costs per unit of product sold.
     C. cost of goods sold.
     d. future administrative costs that will continue

Answer 49

d. future administrative costs that will continue

Question 50

131. Discontinuing unprofitable products will increase profitability
     a. if the resources no longer required by the discontinued product can be eliminated.
     b. if capacity constraints are adjusted.
     C. automatically.
     d. when a large portion of the fixed costs are unavoidable

Answer 50

a. if the resources no longer required by the discontinued product can be eliminated.

Question 51

141. For machine-replacement decisions, depreciation is a cost that is
     a. not relevant.
     b. differential.
     C. incremental.
     d. variable.

Answer 51

a. not relevant

Question 52

148. Managers tend to favor the alternative that makes their performance look best. Therefore, they tend to focus on
     a. how to implement the chosen alternative.
     b. the measures used in the decision model.
     c. the measures used in the performance evaluation model.
     d. gathering the required information

Answer 52

c. the measures used in the performance evaluation model

Question 53

149. If management takes a multiple-year view in the decision model and judges success according to the current year’s results, a problem will occur in the
     a. decision model.
     b. performance evaluation model.
     c. production evaluation model.
     d. quantitative model

Answer 53

b. performance evaluation model

Question 54

The three steps involved in linear programming include all of the following EXCEPT
a. determining the objective.
b. determining the basic relationship.
C. computing the optimal solution.
d. determining the relevant and irrelevant costs

Answer 54

d. determining the relevant and irrelevant costs

Question 55

151. In linear programming, the goals of management are expressed in
     a. an objective function
     b, constraints.
     C. operating policies.
     d. business functions

Answer 55

a. an objective function

Question 56

152. A mathematical inequality or equality that must be appeased is known as

a. an objective function,
b. a constraint.
c. an operating policy.
d. a business function

Answer 56

b. a constraint

Question 57

21. Which of the following involves significant financial investments in projects to develop new products, expand production capacity, or remodel current production facilities?
    a. Capital budgeting
    b. Working capital
    c. Master budgeting
    d. Project-cost budgeting

Answer 57

a. capital budgeting

Question 58

22. The accounting system that corresponds to the project dimension in capital budgeting is the
    a. net present value method.
    b. internal rate of return.
    c. accrual accounting rate of return.
    d. life-cycle costing

Answer 58

d. life-cycle costing

Question 59

23. The stage of the capital budgeting process which distinguishes which types of capital expenditure projects are necessary to accomplish organization objectives is the
    a. identification stage.
    b. search stage.
    c. information-acquisition stage.
    d. selection stage

Answer 59

a. identification stage

Question 60

24. The stage of the capital budgeting process which explores alternative capital investments that will achieve organization objectives is the
    a. identification stage.
    b. search stage.
    c. information-acquisition stage.
    d. selection stage

Answer 60

b. search stage

Question 61

26. The stage of the capital budgeting process which chooses projects for implementation is the
    a. selection stage.
    b. search stage.
    c. identification stage.
    d. management-control stage

Answer 61

a. selection stage

Question 62

27. The stage of the capital-budgeting process in which projects get underway and performance is monitored is the
    a. implementation and control stage.
    b. search stage.
    c. identification stage.
    d. management-control stage

Answer 62

a. implementation and control stage

Question 63

Capital budgeting emphasizes two factors
a. qualitative and nonfinancial.
b. quantitative and nonfinancial.
c. quantitative and financial
d. qualitative and financial

Answer 63

c. quantitative and financial

Question 64

29. Which of the following are NOT included in the formal financial analysis of a capital budgeting program?
    a. Quality of the output
    b. Safety of employees
    c. Cash flow
    d. Neither (a) nor (b) are included

Answer 64

d. Neither (a) nor (b) are included

Question 65

30. Which capital budgeting technique(s) measure all expected future cash inflows and outflows as if they occurred at a single point in time?
    a. Net present value
    b. Internal rate of return
    c. Payback
    d. Both (a) and (b).

Answer 65

d. both (a) and (b)

Question 66

31. Discounted cash flow methods for capital budgeting focus on
    a. cash inflows.
    b. operating income.
    c. cash outflows.
    d. both (a) and (c).

Answer 66

d. both (a) and (c)

Question 67

32. Net present value is calculated using
    a. the internal rate of return.
    b. the required rate of return.
    c. the rate of return required by the investment bankers.
    d. none of the above

Answer 67

b. the required rate of return

Question 68

33. All of the following are methods that aid management in analyzing the expected results of capital budgeting decisions EXCEPT
    a. accrual accounting rate-of-return method.
    b. discounted cash-flow method.
    c. future-value cash-flow method.
    d. payback method

Answer 68

c. future-value cash-flow method

Question 69

34. The capital budgeting method which calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time using the required rate of return is the
    a. payback method.
    b. accrual accounting rate-of-return method.
    c. sensitivity method.
    d. net present value method

Answer 69

d. net present value method

Question 70

38. In using the net present value method, only projects with a zero or positive net present value are acceptable because
    a. the return from these projects equals or exceeds the cost of capital.
    b. a positive net present value on a particular project guarantees company profitability.
    c. the company will be able to pay the necessary payments on any loans secured to finance the project.
    d. of both (a) and (b

Answer 70

a. the return from these projects equals or exceeds the cost of capital.

Question 71

39. Which of the following is NOT an appropriate term for the required rate of return?
    a. Discount rate
    b. Hurdle rate
    c. Cost of capital
    d. All of the above are appropriate terms

Answer 71

d. all of the above are appropriate terms

Question 72

40. Which of the following results of the net present value method in capital budgeting is the LEAST acceptable?
    a. $(10,000)
    b. $(7,000)
    c. $(18,000)
    d. $0

Answer 72

c. $(18,000)

Question 73

41. The definition of an annuity is
    a. similar to the definition of a life insurance policy.
    b. a series of equal cash flows at intervals.
    c. an investment product whose funds are invested in the stock market.
    d. both (a) and (b) are correct

Answer 73

b. a series of equal cash flows at intervals

Question 74

The net present value method focuses on
a. cash inflows.
b. accrual-accounting net income.
c. cash outflows.
d. both (a) and (c).

Answer 74

d. both (a) and (C)

Question 75

43. If the net present value for a project is zero or positive, this means
    a. the project should be accepted.
    b. the project should not be accepted.
    c. the expected rate of return is below the required rate of return.
    d. both (a) and (c).

Answer 75

a. the project should be accepted

Question 76

47. The capital budgeting method that calculates the discount rate at which the present value of expected cash inflows from a project equals the present value of expected cash outflows is the
    a. net present value method.
    b. accrual accounting rate-of-return method.
    c. payback method.
    d. internal rate of return

Answer 76

d. internal rate of return

Question 77

48. In capital budgeting, a project is accepted only if the internal rate of retum
    a. equals or exceeds the required rate of return.
    b. equals or is less than the required rate of return.
    c. equals or exceeds the net present value.
    d. equals or exceeds the accrual accounting rate of return

Answer 77

a. equals or exceeds the required rate of return.

Question 78

52. An important advantage ofthe net present value method of capital budgeting over the internal rate-of-return method is
    a. the net present value method is expressed as a percentage.
    b. the net present values of individual projects can be added to determine the effects of accepting a combination of projects.
    c. no advantage.
    d. both (a) and (b

Answer 78

b. the net present values of individual projects can be added to determine the effects of accepting a combination of projects

Question 79

53. In situations where the required rate of return is not constant for each year of the project, it is advantageous to use
    a. the adjusted rate-of-return method.
    b. the internal rate-of-return method.
    c. the net present value method.
    d. sensitivity analysis

Answer 79

c. the net present value method

Question 80

54. A “what-if’ technique that examines how a result will change if the original predicted data are not achieved or if an underlying assumption changes is called
    a. sensitivity analysis.
    b. net present value analysis.
    c. internal rate-of-return analysis.
    d. adjusted rate-of-return analysis

Answer 80

a. sensitivity analysis

Question 81

56. The focus in capital budgeting should be on
    a. the tax consequences of different investment strategies.
    b. the internal rate of return of different strategies.
    c. expected future cash flows that differ between alternatives.
    d. none of the above

Answer 81

c. expected future cash flows that differ between alternatives

Question 82

57. All of the following are major categories of cash flows in capital investment decisions EXCEPT
    a. the initial investment in machines and working capital.
    b. recurring operating cash flows.
    c. the initial working capital investment
    d. depreciation expense reported on the income statement

Answer 82

d. depreciation expense reported on the income statement

Question 83

58. An example of a sunk cost in a capital budgeting decision for new equipment is
    a. increase in working capital required by a particular investment choice.
    b. the book value of the old equipment.
    c. the necessary transportation costs on the new equipment.
    d. all of the above are examples of sunk costs

Answer 83

b. the book value of the old equipment

Question 84

59. Depreciation is usually not considered an operating cash flow in capital budgeting because
    a. depreciation is usually a constant amount each year over the life of the capital investment.
    b. deducting depreciation from operating cash flows would be counting the lumpsum amount twice.
    c. depreciation usually does not result in an increase in working capital.
    d. depreciation usually has no effect on the disposal price of the machine

Answer 84

b. deducting depreciation from operating cash flows would be counting the lumpsum amount twice

Question 85

60. The relevant terminal disposal price of a machine equals
    a. the difference between the salvage value of the old machine and the ultimate salvage value of the new machine.
    b. the total of the salvage values of the old machine and the new machine.
    c. the salvage value of the old machine.
    d. the salvage value of the new machine.

Answer 85

a. the difference between the salvage value of the old machine and the ultimate salvage value of the new machine

Question 86

61. The method that measures the time it will take to recoup, in the form of future cash inflows, the total dollars invested in a project is called
    a. the accrued accounting rate-of-return method.
    b. payback method.
    c. internal rate-of-return method.
    d. the book-value method

Answer 86

b. payback method

Question 87

63. The payback method of capital budgeting approach to the investment decision highlights
    a. cash flow over the life of the investment.
    b. the liquidity of the investment.
    c. the tax savings of the depreciation amounts.
    d. having as lengthy payback time as possible

Answer 87

b. the liquidity of the investment

Question 88

65. For capital budgeting decisions, the use of the accrual accounting rate of return for evaluating performance is often a stumbling block to the implementation of the
    a. net cash flow.
    b. most effective goal-congruence choice.
    c. discounted cash flow method for capital budgeting.
    d. most effective tax strategy

Answer 88

d. most effective tax strategy

Question 89

66. In the analysis of a capital budgeting proposal, for which of the following items are there no after-tax consequences?
    a. Cash flow from operations
    b. Gain or loss on the disposal of the asset
    c. Reduction of working capital balances at the end of the useful life of the capital asset
    d. There are no after-tax consequences of any of the above

Answer 89

c. Reduction of working capital balances at the end of the useful life of the capital asset

Question 90

69. Comparison of the actual results for a project to the costs and benefits expected at the time the project was selected is referred to as
    a. the audit trail.
    b. management control.
    c. a postinvestment audit.
    d. a cost-benefit analysis

Answer 90

c. a postinvestment audit

Question 91

70. A capital budgeting tool management can use to summarize the difference in the future net cash inflows from an intangible asset at two different points in time is referred to as
    a. the accrual accounting rate-of-return method.
    b. the net present value method.
    c. sensitivity analysis
    d. the payback method

Answer 91

b. the net present value method

Question 92

71. Match each one of the examples below with one of the stages of the capital budgeting decision model.
    Stages:
72. Identification
73. Search
74. Information-acquisition
75. Selection
76. Financing
77. Implementation and control

a. Issuing corporate stock in order to supply the funds to purchase new equipment

b. Learning how to effectively operate Machine #8 only takes 15 minutes

c. The need to reduce the costs to process the vegetables used in producing goulash
d. Monitoring the costs to operate a new machine

e. Percentage of defective merchandise considered too high

f. Will introducing the new product substantially upgrade our image as a producer of quality products

g. Research indicates there are five machines on the market capable of producing our product at a competitive cost

h. Utilization of the internal rate of return for each alternative

Answer 92

a. Financing
b. Information-acquisition
c. Identification
d. Implementation and control
e. Identification
f. Information-acquisition
g. Search
h. Selection