QUESTION 1 When a division has been recording a net loss, how will dropping the division affect net income? Net income will increase only if the corporate fixed costs allocated to the division are avoidable Net income will increase only if all other divisions are showing profits Net income will increase only if corporate income is negative Net income will always increase 2 points QUESTION 2 Which of the following revenues or costs should be excluded from the financial analysis of whether to drop a product? The four million dollar investment last year in equipment to make the product. The $960 monthly revenue that could be earned by leasing the production space currently used to make the product The per-part variable cost of the product The fixed costs that could be eliminated if the product was dropped 2 points QUESTION 3 An opportunity cost is the cost of a new product proposal. is classified as manufacturing overhead. is the potential benefit that may be obtained by following the next best alternative course of action. should be initially recorded as an asset. 2 points QUESTION 4 A cost incurred several years ago that can not be changed and should not influence current business decisions is called __________. A relevant cost An opportunity cost A sunk cost A differential cost 2 points QUESTION 5 When evaluating a capital budgeting decision, which of the following evaluation tools would incorporate the time value of money? ROI NPV Payback method EVA 2 points QUESTION 6 What factor(s), besides the NPV of an investment, should managers consider in a capital budgeting decision? The effect of the investment on the company's reputation All three of the other answers Tax shields related to depreciation that would result from the investment The effect of the investment on the manager's short-term incentives 2 points QUESTION 7 Which of the following three investments will have the highest NPV? All three cases require an initial investment of $45,000, and the required rate of return is 10%. A B C Year 1 net cash in 85,000 60,000 55,000 Year 2 net cash in 75,000 60,000 65,000 Year 3 net cash in 65,000 60,000 75,000 Year 4 net cash in 55,000 60,000 85,000 Total cash flow 280,000 280,000 280,000 Investment B Investment C All three investments will have the same NPV Investment A 2 points QUESTION 8 Sam's Manufacturing Company currently makes 120 units of a necessary component. Management is considering outsourcing this component for a cost of $1,500 per unit. Sam's incurs the following total production costs: Direct Materials $90,000 Direct Labor 28,000 Variable Overhead 45,000 Fixed Overhead 25,000 If production is outsourced, none of the fixed overhead costs will be eliminated. How would profits be impacted if Sam's bought the component? Profits would go down by $17,000 Profits would go down by $8,000 Profits would go up by $25,000 Profits would go up by $8,000 2 points QUESTION 9 Big Arber Company makes 7,000 chairs for a unit sales price of $80. Variable costs are $30 per unit and annual fixed manufacturing costs total $250,000. The company has a one-time opportunity to sell an additional 3,000 units at $75 each in a different market. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect income as follows: Income would increase by $27,857. Income would decrease by $27,857. Income would increase by $135,000. Income would increase by $225,000. 2 points QUESTION 10 Globiane, Inc. has designed a new product that could be sold for $1,000. If management requires a profit of 30% of the selling price, what is the highest cost (target cost) management would accept to make this product? $1,429 $700 $3,333 $300 2 points QUESTION 11 The management of Consumers Mfg. would like to purchase a specialized production machine for $222,000. The machine is expected to last three years, with a salvage value of $5,000. Annual maintenance costs will total $30,000, and annual labor and material savings are predicted to be $140,000. The company's required rate of return in 15%. Find the NPV of this investment. $28,210 $32,442 $14,105 $7,053 2 points QUESTION 12 The Montana Consulting is evaluating the profitability of their two clients, X and Y. Total fixed costs are allocated evenly between customer X and Y, and will remain the same whether they add or drop clients. Should The Montana Consulting drop client Y? The profit/loss for each customer is shown below. Should client Y be dropped? X Y Revenue $410,000 $230,000 Variable costs $184,500 $163,500 Contribution margin $225,500 $66,500 Allocated fixed costs $80,000 $80,000 Customer profit (loss) $145,500 ($13,500) Yes, profit will increase if Client Y is dropped. Yes, because any customer showing a loss should be dropped. Yes, because their revenues are much lower than Client X . No, profit will decrease if Client Y is dropped. 2 points QUESTION 13 Hawk, Inc. has a 15% required rate of return. Three divisions of Hawk have proposed three projects to increase income over the next 12 years. Three divisions report different measures as follows: Project A was reported to have an NPV of ($530) or negative $530. Project B was reported with an internal rate of return of 18%. Project C was reported to have a payback period of 15 years. With which of these projects should Hawk move forward? Project B Project C All three sound great! Project A 2 points QUESTION 14 Which approach to budgeting approach is most effective because lower level employees are involved in the budgeting process? Top-down budgeting Master budgeting Participative budgeting Associative budgeting 2 points QUESTION 15 In the budget process, what do we call the estimated number of units to be manufactured (based on sales projections and inventory policies)? the manufacturing budget the sales budget the materials budget the production budget 2 points QUESTION 16 Which of the following can be a problem with participative budgeting? Budget-based incentives lead to incorrect information about projected costs and sales (budgetary slack) being communicated to higher level management. Production budgets are established based on unrealistically low sales forecasts, leading to production being short of materials and labor. All the other answers. Conflicts of interest when lower level managers are evaluated by comparing actual results to the budget. 2 points QUESTION 17 Which component of the master budget is NOT needed to create the budgeted income statement? The cash budget The sales budget The direct materials budget The selling and administrative budget 2 points QUESTION 18 A revised master budget that represents expected costs given actual sales is called the: Master budget Standard budget Flexible budget Budgeted income statement 2 points QUESTION 19 What is the best way to establish standard costs? Use historical data from when the product was first being released Use ideal standards, assuming no waste or down time Adjust ideal standards for common problems in production (machine downtime due to maintenance, expected materials waste, etc). Strive for perfection, with the lowest imaginable costs 2 points QUESTION 20 Which of the following best describes variance analysis? Comparing flexible budget costs to master budget costs Comparing flexible budget costs to actual costs Comparing ideal costs to master budget costs Comparing master budget costs to actual costs 2 points QUESTION 21 Which factor listed below is the most likely cause for unfavorable materials quantity variances? Buying a new, more efficient machine on which to manufacture the products Selling more product than originally expected. Hiring unskilled, untrained labor Using more costly materials than budgeted 2 points QUESTION 22 Jane's Juices, which makes smoothies on university campuses across Michigan, is making an annual budget for this coming financial year. Last year, 27,000 units were sold, and sales are expected to increase 30% next year, and the sales price is expected to remain at $9 each. Finished goods inventory at the end of the year was 850 units, and management likes to have enough inventory at the end of the year for 2% of next year's sales. What is the sales budget (in dollars) for next year? $305,955 $325,845 $296,010 $315,900 2 points QUESTION 23 At Jamal's Juices, each smoothie requires 18 oz of juice, which costs $0.20/oz. It takes 0.10 hrs of direct labor to make smoothies, at $9.55 per DLH. Variable overhead costs $2.0/smoothie, and fixed costs total $45,000 per year. They expect to produce 78,000 smoothies next year. Calculate the manufacturing overhead budget for next year. $74,490 $230,490 $156,000 $201,000 2 points QUESTION 24 Dex, Inc. installs pre-built decks on mobile homes. They expect to make 300 decks next year, where each deck requires 500 ft of lumber, at $1.75 per foot. Calculate the standard cost of direct materials (per deck). $262,500 $875 $1,400 $525 2 points QUESTION 25 Dreidell Corporation expected to use 1.1 direct labor hours to produce one unit of their product, at a rate of $12/DLH. Actual results for last year indicate that they sold 420,000 units, where their direct labor workforce actually worked 500,000 hours at a rate of $13.25/DLH. What is the Direct Labor Rate Variance? $525,000 favorable $625,000 favorable $625,000 unfavorable $525,000 unfavorable 2 points QUESTION 26 Copper Burgers sells burgers with 0.6 lb meat on each burger. They expected to buy meat a $4.80/lb, but actually ended up paying $3.45/lb. They made 60 burgers this week, and actually used 32 lbs of meat. Calculate the Direct Materials Quantity Variance. $81.00 favorable $13.80 unfavorable $81.00 unfavorable $19.20 favorable 2 points QUESTION 27 Company R has produced the following variance analysis report. If Company R has a policy to investigate variances over 10% of the flexible budget, which variances should be investigated? Actual Flexible budget Budget Variance Price Variance Quantity Variance DM $78,580 $88,000 ($9,420) F $1,200 U ($10,620) F DL $123580 $145,000 ($21,420) F ($2,650) F ($18,770) F VOH $126,860 $119,000 $7,860 U ($5,560) F $2,300 U The direct materials quantity variance and the direct labor efficiency variance. The direct labor rate variance and the direct labor efficiency variance. The direct materials quantity variance and the variable overhead efficiency variance. The direct materials price variance and the direct materials quantity variance. 2 points QUESTION 28 Companies that elect to decentralize their operations must resolve issues relating to the competency of the management of the divisions all the above none of the above the tendency of managers to sometimes make decisions that are suboptimal from the companys point of view. the design of a measurement system that accurately reports on division performance. 2 points QUESTION 29 Residual income is defined as controllable income less the minimum rate of return on average operating assets. contribution margin less controllable fixed costs. controllable margin divided by average operating assets. variable contribution margin less the minimum rate of return on average operating assets. 2 points QUESTION 30 Which of the following situations gives rise to the need for a transfer price? Two divisions of the same company sell competing products to the same customer None of the other answers Two divisions of the same company sell to one another Two divisions of the same company sell to the same wholesaler 2 points QUESTION 31 Why is the statement of cash flows necessary? Because the income statement is constructed using cash-basis accounting Because investors and managers wanted additional information on why cash went up or down in a period Because investors and managers needed information on the net profit of a period Because investors and managers wanted information on how much cash went up or down in a period 2 points QUESTION 32 Cash increase due to the proceeds from the bond issuance would be found in which section of the statement of cash flows? The investing activities section The operating activities section The accrual activities section The financing activities section 2 points QUESTION 33 Which of the following would most likely be classified as a profit center? The automotive division of a large, decentralized corporation The accounting department of manufacturing company The Parks and Resorts business segment of the Walt Disney Company The Mt Pleasant branch of the Kohl's department store chain 2 points QUESTION 34 A balanced scorecard typically includes: Customer satisfaction measures Internal processes measures Financial measures All of the above 2 points QUESTION 35 In which section of the balanced scorecard would you track the gross margin ratio? The internal business process perspective The customer perspective The financial perspective The learning and growth perspective 2 points QUESTION 36 The current pretax income for Coretex is $40,000 (tax rate is 25%), with an average asset base of $145,000, and an expected return of 18 percent or higher. The ROI for Coretex would amount to: 72.4% 20.7% 18.0% 27.6% 2 points QUESTION 37 In order to avoid managerial conflicts of interest to reject favorable investment, which measure should be used to evaluate the performance of an investment center manager? NPV EVA The payback method ROI 2 points QUESTION 38 Assume the following information for one segment of a company: Sales revenue $1,800,000 Variable manufacturing costs 170,000 Fixed manufacturing costs 240,000 Variable selling/administrative costs 130,000 Fixed selling/administrative costs 95,000 What is the product line's segment income? $1,165,000 $1,390,000 $1,500,000 $1,465,000 2 points QUESTION 39 The Rubber Division of Morgan Company manufactures rubber moldings and sells them externally for $50. At the current level of production, its variable cost is $20 per unit, and its fixed cost per unit is $7. Morgan's president wants the Rubber Division to transfer 5,000 units to another company division. Assuming the Rubber Division has available capacity for 5,000 additional units, the economic rule would set transfer price as: $50. $27. $7. $20. 2 points QUESTION 40 A common size income statement analysis would show what figure for the following company: 2020 2019 Net sales $678,500 $630,485 Cost of goods sold $195,000 $186,405 Gross margin $483,500 $444,080 Selling/administrative costs $115,000 $128,350 Operating income $368,500 $315,730 Income tax expense $73,700 $63,146 Net income $294,800 $252,584 2020 operating income (as a percent of net sales) is 54.3% The change in gross margin is $39,420 The 2020 change in operating income is $52,770 The percent change in net income is 16.7%.