BEC 7

Question 1

Data from ______________ is typically structured, while data from ________ is typically unstructured.

board meeting minutes; a governmental water scarcity report that is used by a beverage company

staffing increases or decreases due to restructuring; email about decision making and performance.

emerging interest in a new product from a competitor; an entity’s risk tolerance

marketing reports from website tracking services; government-produced geopolitical reports and studies

Answer 1

staffing increases or decreases due to restructuring; email about decision making and performance.

Correct! Staffing data are typically structured; email is unstructured (text).

Question 1

Which of the following standard costing variances would be least controllable by a production supervisor?

Overhead volume.
Overhead efficiency.
Labor efficiency.
Material usage.

Answer 1

Overhead volume.

Question 2

Unlike the traditional full-absorption cost system, activity-based costing (ABC) assigns

Costs to individual products based only on nonfinancial variables.

Costs to individual products based on various activities involved.

Overhead to individual products based on some common measure of production volume.

Only costs which can be directly traced to individual products.

Answer 2

Costs to individual products based on various activities involved.

Question 3

Which one of the following options, A through D, is most likely to have the greatest value (all other things being equal)?

Option Time to Expiration Risk-Free Interest Rate Stock Beta

A 3 Yrs. 3.0% 2.00
B 1 Yr. 4.0% 1.00
C 2 Yrs. 2.0% 1.60
D 8 Yrs. 4.5% 4.00

Answer 3

D

Option D is most likely to have the greatest value. The value of a stock option generally increases the longer the time to expiration, the higher the risk-free interest rate, and the higher the volatility of the stock. Of the options A through D, option D has the longest time to expiration, is in the highest risk-free interest rate environment, and the related stock has the highest beta.

Question 4

Which of the following forms of analysis, if either, is concerned only with analysis of the external environment of an entity?

PEST Analysis SWOT Analysis
Yes Yes
Yes No
No Yes
No No

Answer 4

Yes No

Question 5

Which of the following is a general control rather than a transaction control activity?

Technology development policies and procedures.
Reconciliations.
Physical controls over assets.
Controls over standing data.

Answer 5

Technology development policies and procedures

Question 6

A company enters into an agreement with a firm who will factor the company’s accounts receivable. The factor agrees to buy the company’s receivables, which average $100,000 per month and have an average collection period of 30 days. The factor will advance up to 80% of the face value of receivables at an annual rate of 10% and charge a fee of 2% on all receivables purchased. The controller of the company estimates that the company would save $18,000 in collection expenses over the year. Fees and interest are not deducted in advance. Assuming a 360-day year, what is the cost of engaging in this arrangement?

(This question is CMA adapted)

11.0%
14.0%
16.0%
17.5%

Answer 6

17.5%

Correct! The correct percentage cost of the arrangement is determined as the net cost of the factoring divided by the net amount received (essentially, an effective interest calculation). The total amount paid to the factor would be the annual rate applied to the amount received or ($100,000 × 80%) × 10% = $8,000, plus the annual fee or ($100,000 × 12) × 2% = $24,000, for a total payment of $32,000. That would be offset by the cost savings of $18,000, so the net cost is $14,000 ($32,000 − $18,000). The net amount received (proceeds) is $80,000 ($100,000 × .80). Therefore, the annual interest cost is equal to $14,000/$80,000 = 17.5%, the correct answer.

Question 7

Hoyt Co. manufactured the following units:

Saleable 5,000
Unsaleable (normal spoilage) 200
Unsaleable (abnormal spoilage) 300
The manufacturing cost totaled $99,000. What amount should Hoyt debit to finished goods?

$90,000.
$93,600.
$95,400.
$99,000.

Answer 7

$93,600

Normal spoilage is a manufacturing cost because it is an expected and inherent part of production. Thus, it is included in the cost of finished goods. Abnormal spoilage is the amount of spoilage in excess of normal spoilage, and it is treated as a period cost.

The total units completed are 5,500 (5,000 + 200 + 300). Of this total, 5,200 are included in finished goods. Thus, 5,200/5,500 of the total cost incurred is included in finished goods. The remainder is a period cost.

Debit to finished goods = $93,600 = (5,200/5,500)$99,000

Question 8

A company (Zookha) that provides software for making online conference calls linked their users’ login and call record information with the users’ LinkedIn profiles, which are publicly available. Although Zookha had promised its users that their identifying data would not be shared, in fact, Zookha sold the data to third parties. This would be best be described as an example of a(n) ______ issue.

Data retention
Data classification
Data taxonomy
Data storage

Answer 8

Data classification

Correct. Data classification defines the privacy and security properties of data. In this example, Zoohka told users that their data would not be shared (i.e., it would be used only internally), but Zookha then resold the data, which violates the classification of the data as internal. This is a data classification issue.

Question 9

In which one of the following circumstances are customers most likely to have the greatest ability to affect product prices?

There are few suppliers of the product.
There are many unrelated, low-quantity buyers of the product.
Information about the sources of the product is widely available.
The product is highly specialized.

Answer 9

Information about the sources of the product is widely available.

Question 10

Which of the following is often a contract with a vendor for the purchase of goods?

Remittance advice
Vendor invoice
Packing lists
Purchase order

Answer 10

Purchase order

Question 11

Which one of the following would not be a purpose of the General Agreement on Tariffs and Trade (GATT)?
Eliminating import quotas.
Harmonizing intellectual property laws.
Eliminating subsidies to export industries.
Establishing procedures for collection of international debt.

Answer 11

Establishing procedures for collection of international debt.

Question 12

Which one of the following sets correctly describes the nature of the coefficient for cross-price elasticity of demand for goods that are complements and for those that are substitutes? Cross-Price Elasticity of Demand Coefficient for

Complementary Goods Substitute Goods
Option A Positive Positive
Option B Positive Negative
Option C Negative Positive
Option D Negative Negative

Answer 12

Option C Negative Positive

Correct! The calculated coefficient of cross-price elasticity of demand reflects the proportional change in the quantity of one good expected as a result of a change in the price of the other good. The coefficient is negative for complementary goods and is positive for substitute goods.

Question 13

Green, Inc., a financial investment-consulting firm, was engaged by Maple Corp. to provide technical support for making investment decisions. Maple, a manufacturer of ceramic tiles, was in the process of buying Bay, Inc., its prime competitor. Green’s financial analyst made an independent detailed analysis of Bay’s average collection period to determine which of the following?

Financing.
Return on equity.
Liquidity.
Operating profitability.

Answer 13

Liquidity.

Question 14

The following is information about three companies:

                       ABC Co.	XYZ Co.	KLM Co. Total assets	$109,000	$450,000	$850,000 Total liabilities	44,000	150,000	450,000 Total equity	65,000	300,000	400,000 Which company would be considered least risky from a creditor’s viewpoint?

KLM, because the debt ratio is the highest.
ABC, because the debt ratio is average.
XYZ, because the debt ratio is the lowest.
XYZ, because the debt ratio is the highest.

Answer 14

XYZ, because the debt ratio is the lowest.

Question 15

Which of the following is an advantage of using a value-added network for EDI transactions?

Ability to deal with differing data protocols.
Decrease in cost of EDI.
Increase in data redundancy.
Direct communication between trading partners.

Answer 15

Ability to deal with differing data protocols.

Question 16

What is the most likely effect of open market sale of securities by the Federal Reserve on short-term interest rates and gross domestic product (GDP)?
Short-Term Interest Rates Gross Domestic Product (GDP)
Option A Increase Increase
Option B Increase Decrease
Option C Decrease Increase
Option D Decrease Decrease

Answer 16

Option B

Correct! Sale of securities in the open market by the Fed has the effect of reducing the money supply, most likely causing interest rates to increase. Increases in interest rates will have the effect of dampening demand; thus, it is most likely that GDP will decrease.

Question 17

Which of the following terms refers to a site that has been identified and maintained by the organization as a data processing disaster recovery site but has not been stocked with equipment?

Hot.
Cold.
Warm.
Flying start.

Answer 17

Cold.

Question 18

Which of the following equations correctly represents the economic concept of normal profit?

Revenue – Explicit Expenses = 0
Revenue – Explicit Expenses – Implicit Expenses = 0
Revenue – Explicit Expenses ≥ 0
Revenue – Explicit Expenses – Implicit Expenses ≥ 0

Answer 18

Revenue – Explicit Expenses – Implicit Expenses = 0

Question 19

When analyzing a country’s balance of payments accounts, the

“Current account” refers only to merchandise exports and imports.

“Current account” and “trade balances” are the same.

“Capital account” refers to the transactions related to the international movement of financial capital.

Country will be in financial jeopardy unless each component in the balance of payments accounts balances at the end of the year.

Answer 19

“Capital account” refers to the transactions related to the international movement of financial capital.

Question 20

Economies often experience inflation but seldom experience long period of deflation. Which of the following is true about a deflationary economy?

Companies are hesitant to make investments.
The lower prices encourage consumers to make major purchases.
Interest rates tend to be high.
Actual GDP is above potential GDP.

Answer 20

Companies are hesitant to make investments.

Question 21

When using a flexible budget, a decrease in production levels within a relevant range

Decreases variable cost per unit.
Decreases total costs.
Increases total fixed costs.
Increases variable cost per unit.

Answer 21

Decreases total costs.

Question 22

Which of the following statements of risk appetite related to factory floor accidents is acceptable?
“Low”
“ < 3 per year”

Neither
Both
“Low” but not “ < 3 per year.”
“ < 3 per year” but not “Low.”

Answer 22

Both

Question 23

Which of the following represents a firm’s average gross receivables balance?

I. Days’ sales in receivables x Accounts receivable turnover.
II. Average daily sales x Average collection period.
III. Net sales ÷ Average gross receivables.

I only.
I and II only.
II only.
II and III only.

Answer 23

II Only

Question 24

Lon Co.'s budget committee is preparing its master budget on the basis of the following projections: Sales $2,800,000 Decrease in inventories 70,000 Decrease in accounts payable 150,000 Gross margin 40% What are Lon's estimated cash disbursements for inventories? $1,040,000. $1,200,000. $1,600,000. $1,760,000.

Answer 24

$1,760,000. First, purchases must be computed, and then the estimated payments to be made on accounts payable. With inventory declining, purchases must equal cost of sales less the decline in inventory. In other words, purchases are less than cost of sales if inventory declines. If the gross margin is 40% of sales, then cost of sales is 60% of sales. Purchases = Cost of sales - Inventory decline = (.60)($2,800,000) - $70,000 = $1,610,000 If accounts payable (AP) is to decrease, payments on AP must exceed purchases. Estimated payments on AP = $1,610,000 + $150,000 decrease in AP = $1,760,000.

Question 25

Which of the following is a major motivation for the adoption of new payment systems? Generating real-time data streams. Monitoring physical processes. Improving privacy. Reducing abandonment rates.

Answer 25

Reducing abandonment rates

Question 26

A firm is considering issuing participating preferred stock for financing purposes. If the firm issues participating preferred stock, the holders of those shares would most likely have the right to Receive dividends not paid in prior periods before common shareholders receive dividends. Convert the preferred stock to common stock. Acquire shares of any new issue of common stock. Receive dividends in excess of the specified preference rate.

Answer 26

Receive dividends in excess of the specified preference rate.

Question 27

The market price of a bond issued at a premium is equal to the present value of its principal amount Only, at the stated interest rate. And the present value of all future interest payments, at the stated interest rate. Only, at the market (effective) interest rate. And the present value of all future interest payments, at the market (effective) interest rate.

Answer 27

And the present value of all future interest payments, at the market (effective) interest rate. The market price of a bond, whether issued at par, at a premium, or at a discount, will be the present value of the principal amount plus the present value of future interest payments, all at the market (effective) rate of interest.

Question 28

An economy is at the peak of the business cycle. Which of the following policy packages is the most effective way to dampen the economy and prevent inflation? Increase government spending, reduce taxes, increase money supply, and reduce interest rates. Reduce government spending, increase taxes, increase money supply, and increase interest rates. Reduce government spending, increase taxes, reduce money supply and increase interest rates. Reduce government spending, reduce taxes, reduce money supply, and reduce interest rates.

Answer 28

Reduce government spending, increase taxes, reduce money supply and increase interest rates.

Question 29

Assuming that the real rate of interest is the same in both countries, if country A has a higher nominal interest rate than country B, then the currency of country A will likely be selling at a Forward discount relative to the currency of country B. Forward premium relative to the currency of country B. Spot discount relative to the currency of country B. Spot premium relative to the currency of country B.

Answer 29

Forward discount relative to the currency of country B. This answer is correct. If the real rates of interest are the same, the country with the higher nominal interest rate is expected to experience a higher rate of inflation. A higher rate of inflation is associated with a devaluing currency so the currency of the country with the higher nominal interest rate will likely be selling at a forward discount.