# accounting exam

1.Which one of the following is the estimated rate (i.e., percentage) that makes the discounted present value of future cash flows equal to the initial investment? (Points : 2)

Weighted-average cost of capital (WACC).

Modified internal rate of return (MIRR).

Book (accounting) rate of return.

Internal rate of return (IRR).

Accounting rate of return (ARR), after tax.

2.Done on a regular basis, relevant cost pricing in special order decisions can erode normal pricing policies and lead to: (Points : 2)

Overconfidence in decision-making.

A loss in the firm’s profitability.

Conflicting goals between management and sales personnel.

Maximization of resources.

3.When the internal rate of return (IRR) method and the net present value (NPV) method do not yield the same recommendation for the same investment project, the technique normally selected is: (Points : 2)

IRR, because all reinvestment of funds occurs at the rate of the cost of capital and because it takes into consideration the relative size of the initial investment.

NPV, because it takes into consideration the relative size of the initial investment.

IRR, because all reinvestment of funds occurs at the discount rate that will make the NPV of the project equal to zero.

NPV, because all reinvestment of funds occurs at the discount rate that will make the NPV of the project equal to zero.

4.Which one of the following statements concerning capital budgeting is not true? (Points : 2)

A basic objective underlying capital budgeting is to select assets that will earn a satisfactory return.

Capital budgeting is the process of planning asset investments.

Capital budgeting is based on precise estimates of future events.

Capital budgeting involves estimating the revenues and costs of each proposed project, evaluating their merits, and choosing those worthy of investment.

Capital budgeting uses after-tax cash flows in the analysis of proposed investments.

5.The term “breakeven after-tax cash flow” represents: (Points : 2)

A pessimistic estimate in a typical scenario analysis.

An optimistic estimate in a typical scenario analysis.

The amount of after-tax cash flow needed to generate a return equal to a project’s IRR.

The cash flow needed to generate an IRR of zero.

An estimate that can be arrived at using Goal Seek in Excel.

6.The capital budgeting method(s) that is (are) most likely to provide consistency between data for capital budgeting and data for subsequent performance evaluation is (are) the: (Points : 2)

Payback period.

Discounted cash flow (DCF) methods.

Book (i.e., accounting) rate of return method.

Discounted payback period.

Cash-flow proxy method.

7.Which of the following is not one of the four general classes of real options? (Points : 2)

Expansion option.

Exercise option.

Abandonment option.

Investment-timing option (e.g., delay)

8.The opportunity cost of making a component part in a factory with no excess capacity is the: (Points : 2)

Variable manufacturing cost of the component.

Fixed manufacturing cost of the component.

Total manufacturing cost of the component.

Cost of the production given up in order to manufacture the component.

Net benefit foregone from the best alternative use of the capacity required.

9.You just bought a new car for \$125,000. Before you had time to get insurance, the car was wrecked. Weird Wally offers to take it off your hands for \$10,000. You can then purchase a similar model for \$128,000. A body-shop with an excellent reputation offers to rebuild it for \$90,000 and loan you a similar model while the vehicle is being rebuilt. Once rebuilt, the body-shop claims, it will run like a new car and nobody will be able to tell the difference. What would you do from a financial point of view? (Points : 2)

Rebuild to save \$13,000.

Rebuild to save \$28,000.

Rebuild to save \$38,000.

Sell to Weird Wally and save \$7,000.

10.The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is: (Points : 2)

The variable manufacturing cost of the component.

The total manufacturing cost of the component.

The total variable cost of the component.

The fixed manufacturing cost of the component.

Zero.

11.An effective analysis of sales mix needs to include an analysis of: (Points : 2)

Value chain analysis.

Production constraints.

Sales mix costing.

Revenue forecasting.

12.Omaha Plating Corporation is considering purchasing a machine for \$1,500,000. The machine will generate a constant after-tax income of \$100,000 per year for 15 years. The firm will use straight-line (SL) depreciation for the new machine over 10 years with no residual value.

What is the payback period for the new machine, under the assumption that cash inflows occur evenly throughout the year? (Points : 2)

4 years.

5 years.

6 years.

10 years.

15 years.

13.Which of the following statements regarding capital investment analysis is false? (Points : 2)

A long-term planning horizon is assumed.

Benefits of potential investment projects are conceptually expressed in terms of accounting income (or reduction in costs).

Project acceptance decisions are based on models that explicitly incorporate the time value of money.

Need to incorporate income-tax effects in the analysis, for both revenues (gains) as well as expenses (losses).

14.The value chain analysis used in connection with the make or buy decision often leads a firm to make use of: (Points : 2)

Activity-based costing.

Cost-volume profit analysis.

Outsourcing activities.

Relevant cost-based pricing.

15.Which one of the following methods assumes that all interim cash inflows generated by an investment earn a return equal to the internal rate of return (IRR) of the investment? (Points : 2)

Modified internal rate of return (MIRR).

Payback.

Net present value (NPV).

Present value index (PI).

Internal rate of return method (IRR).

16.Customer-response time (CRT) is defined as: (Points : 2)

The time between when a customer places an order and the time when the order is received by the customer.

The elapsed time between initial customer contact and the time a customer places an order.

The time between when a customer places an order and when that order is manufactured.

The time between when an order is started into production and when that order is completed.

17.Xero Company’s standard factory overhead rate is \$3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is \$3,150, of which \$1,350 is fixed overhead. For December, the actual factory overhead cost was \$3,800 for 840 actual DLHs, of which \$1,300 was for fixed factory overhead. Assuming the use of a four-way breakdown (decomposition) of the total overhead variance, what is the variable factory overhead efficiency variance for December? (Points : 2)

\$90 unfavorable.

\$150 unfavorable.

\$225 favorable.

\$425 unfavorable.

\$650 unfavorable.

18.Xero Company’s standard factory overhead rate is \$3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is \$3,150, of which \$1,350 is fixed overhead. For December, the actual factory overhead cost was \$3,800 for 840 actual DLHs, of which \$1,300 was for fixed factory overhead. Under a four-way breakdown (decomposition) of the total overhead variance, what is the variable factory overhead spending variance for December? (Points : 2)

\$50 favorable.

\$225 favorable.

\$425 unfavorable.

\$610 unfavorable.

\$650 unfavorable.

19.Which of the following are computer-based databases that include comprehensive information about the firm’s cost drivers? (Points : 2)

Cost tables.

Cost databases.

Cost driver tables.

Excel tables.

20._________________________ is an important first step in value engineering because it identifies critical consumer preferences that will define the product’s desired functionality. (Points : 2)

Consumer analysis

Sales force analysis

Design analysis

R&D analysis

Market place analysis

21.Target cost can be defined as: (Points : 2)

Manufacturing cost – sales price.

Competitive price – desired profit.

Desired profit – market price.

Target price – manufacturing cost.

22.Differences in expectation levels lead to two basic types of standards in a standard cost system: (Points : 2)

Ideal and real.

Ideal and currently attainable.

Normal and conceptual.

Attainable and real.

Current and future.

23.In a standard cost system, an unfavorable production-volume variance would result if: (Points : 2)

There is an unfavorable labor efficiency variance.

There is an unfavorable labor rate variance.

Actual production is less than the “denominator volume.”

There is an unfavorable manufacturing overhead spending variance.

24.Henry Ford was an early pioneer in the use of: (Points : 2)

the theory of constraints.

target costing.

life cycle costing.

just-in-time manufacturing.

25.Which of the following is not a cost system proposed as an extension to ABC systems, with the overall goal of more accurately allocating manufacturing overhead costs to outputs? (Points : 2)

Resource consumption accounting (RCA).

Flexible standard costing.

GPK (Grenzplankostenregnung).

Variable costing.

26.Xero Company’s standard factory overhead rate is \$3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is \$3,150, of which \$1,350 is fixed overhead. For December, the actual factory overhead cost was \$3,800 for 840 actual DLHs, of which \$1,300 was for fixed factory overhead. What was the fixed factory overhead spending variance for December? (Points : 2)

\$50 favorable.

\$225 favorable.

\$425 unfavorable.

\$560 unfavorable.

\$610 unfavorable.

27.Gerhan Company’s flexible budget for the units actually manufactured in May shows \$15,640 of total factory overhead; this output level represents 70% of available capacity. During May the company applied overhead to production at the rate of \$3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company spent 5,000 DLHs and incurred \$16,500 of total factory overhead cost during May, including \$6,800 for fixed factory overhead. Under a three-variance breakdown (decomposition) of the total overhead variance, what is the total factory overhead spending variance for May? (Points : 2)

N/A—this variance does not exist in a three-variance analysis of the total overhead variance.

\$300 favorable.

\$380 unfavorable.

\$480 unfavorable.

\$1,160 unfavorable.

28.One important short-term goal for a company is to earn the projected operating income for the period. Attainment of this goal is measured by comparing the actual operating income to the: (Points : 2)

Flexible-budget operating income.

Prior period’s operating income.

The income reflected in the company’s balanced scorecard.

Master budget operating income.

Industry average operating income.

29.An organization planned to use \$82 of material per unit of output, but it actually used \$80 per unit. During this period, the company planned to make 1,200 units, but actually produced only 1,000 units. The flexible budget amount for materials is: (Points : 2)

\$80,000.

\$82,000.

\$96,000.

\$98,400.

30.By convention, short-term financial control is accomplished by all the following except: (Points : 2)

Comparing actual to budgeted financial results.

Calculating a series of cost and revenue variances at the end of the period.

The use of flexible budgets and standard costs.

Explaining the total operating-income variance for a given period.

The use of productivity analysis.

31.Risk aversion is by: (Points : 2)

Lack of a strategic emphasis in decision making.

Use of non-strategic performance measurement systems.

Presence of uncertainty in a manager’s environment.

A manager’s inability to deal with stress.

32.Table Inc. planned and manufactured 250,000 units of its single product in 2010, its first year of operations. Variable manufacturing costs were \$30 per unit of production. Planned and actual fixed manufacturing costs were \$500,000. Marketing and administrative costs (all fixed) were \$300,000 in 2010. Table Inc. sold 200,000 units of product in 2010 at \$50 per unit. Variable costing operating income for 2010 is calculated to be: (Points : 2)

\$1,000,000.

\$3,200,000.

\$3,300,000.

\$4,200,000.

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

Discounted cash flow.

Liquidity.

Earnings base.

Profitability.

34.Managers who are risk prone: (Points : 2)

Seek risky projects that promise some chance of a low benefit.

Seek risky projects that promise some chance of a high benefit, although the projects may have a risk of low benefit.

Seek risky projects.

Seek high risk projects that promise some chance of a high benefit, although the projects may have a very significant risk of no benefit.

35.Bonus payment options include all of the following except: (Points : 2)

Perks.

Current bonus.

Deferred bonus.

Stock options.

Performance shares.

36.Which one of the following develops the value of the firm as the discounted present value of the firm’s net free cash flows? (Points : 2)

Discounted cash flow method.

Liquidity method.

Multiples-based method.

Profitability method.

37.For production and support departments, a method of implementing cost centers that is output-oriented is the: (Points : 2)

Budget slack method.

Cost shifting approach.

Outsourcing approach.

Discretionary-cost method.

Engineered-cost approach.

38.The stock option form of bonus payments to managers usually: (Points : 2)

Motivates well even in extended market downturns.

Can lose some motivation because of the delay in reward.

Focuses on the short-term.

Is not consistent with shareholder interests.

39.Compensation plans for high-level managers and executives are usually explained in the firm’s: (Points : 2)

Management Discussion and Analysis (MD&A).

Income Statement.

Notes to the Financial Statements.

Proxy Statement.

40.In a formal management control system, top management sets expectations for desired manager performance. Which of the following is not one of the areas in which a formal individual management control system would be used? (Points : 2)

Hiring practices.

Promotion policies.

Operations.

Sales.

Organizational culture.

41.There is a current tax for the manager when which of the following types of compensation is received? (Points : 2)

Qualified stock options

Nonqualified stock options

Deferred bonus

Current bonus

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

Revenue centers.

Contribution centers.

Profit centers.

Cost centers.

43.Which one of the following computes value based on annual earnings? (Points : 2)

Discounted cash flow method.

Liquidity method.

Multiples-based method.

Profitability method.

44.Of most relevance in deciding how or which costs should be assigned to an SBU is the degree of: (Points : 2)

Avoidability.

Causality.

Controllability.

Reliability.

45.There is a current tax deduction for the firm for which of the following types of compensation? (Points : 2)

Qualified stock options.

Nonqualified stock options.

Deferred bonus.

Current bonus.

Performance shares.

46.Risk aversion by managers should be recognized when revising compensation plans because: (Points : 2)

Compensation mix (salary, bonus) can influence a manager’s risk aversion.

Most companies want risk averse managers.

Most companies want risk taking managers.

It costs less to pay risk averse managers.

47.A strategic business unit (SBU) consists of a well-defined set of controllable operating activities

over/about which the SBU manager is: (Points : 2)

Knowledgeable.

Responsible for strategy.

Responsible for strategy and execution.

Responsible for strategy, execution, and performance.

48.An increase in the market price of a company’s common stock will immediately affect its: (Points : 2)

Stock return.

Debt to equity ratio.

Earnings per share.

Return on common stockholders’ equity.

49.There is a common concern today that executive compensation in the U. S. is: (Points : 2)

Ineffective as a performance incentive

Not properly disclosed to the IRS

Varies too greatly from industry to industry

50.Cost allocation of service department costs to production departments make the evaluation and control processes in the production departments: (Points : 2)

Simpler.

More complex.

Forthright and fair.

Less efficient.

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