.Beta Division had the following information:
Asset base in Beta Division
Net income in Beta Division
Weighted average cost of capital
Target ROI
Margin for Beta Division
$400,000
$50,000
12%
15%
20%
7. What is the return on investment of Beta Division?
a. 20.0%
b. 12.5%
c. 62.5%
d. 800.0%
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ANS: B
SUPPORTING CALCULATIONS:
$50,000/$400,000 = 12.5%
1. Which of the following is the discount rate that equates the net present value of a series of cash flows
to zero?
a. investment rate of return.
b. external rate of return.
c. internal rate of return.
d. international rate of return
2. Which of the following departments is likely to be an investment center?
a.
b.
c.
d.
Machining department
Personnel department
Accounting department
Food products division
3. An example of a favorable variance is _______.
Actual expenses are less than expected
Actual revenues are less than expected.
Expected labor costs are less than actual labor costs
Material prices are greater than expected
Th
a.
b.
c.
d.
sh
4. Beta Division had the following information:
Investment in Beta Division
$400,000
Operating Profit in Beta Division
$50,000
Weighted average cost of capital
12% Target ROI 15% Profit Margin % for Beta Division 20%
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If the division investment is decreased by $100,000, with no other changes, the return on investment of
Beta Division will be
a. 100.0%
b. 16.7%
c. 600.0%
d. 62.5%
ANS: B SUPPORTING CALCULATIONS: $50,000/($400,000 - $100,000) = 16.7%
5. For a bank, Drive Through is a _____ department.
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a. Production
b. Service
6. Beta Division had the following information:
Asset base in Beta Division
$400,000
Net income in Beta Division
$50,000
Weighted average cost of capital
12%
Target ROI
15%
Margin for Beta Division
What is EVA for Beta Division?
a. $60,000
b. $48,000
c. $7,500
Th
d. $2,000
ANS: D
sh
SUPPORTING CALCULATIONS:
$50,000 - ($400,000  0.12) = $2,000
8. Which of the following is not a major group responsible for variances in organizations?
a. Creditors
b. Consulting
c. Stockholders
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20%
d. Production
Basing manager compensation on firm stock performance diversifies risk.
a. True
b. False
9. Direct labor variances stem from:
a.
b.
c.
d.
Managers do not correctly anticipate changes in wage rates.
Poor materials are used in production.
Supervisors encounter scheduling problems.
All of the above.
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10. When using the internal rate of return to evaluate investment alternatives, what rate would an
analyst need to specify?
a. cutoff rate.
b. Federal funds rate.
c. prime interest rate.
d. time-adjusted rate.
11. The terminal cash flows associated with an investment project include which of the following?
a.
b.
c.
d.
Income tax effects resulting from periodic cash flows.
Loss in tax savings from lost depreciation
Tax loss on disposal of equipment.
All of the above.
20. Which of the following statements is true concerning decentralization?
a. Decentralization helps train managers.
b. Decentralization provides a basis for evaluating manager performance.
c. Decentralization motivates managers.
d. All of the answers are correct.
For bank data processing is a _______ department.
Th
a. Service
b. Production
sh
12. What is true of audits of the capital investment process?
a. Audits of the capital investment process compare the estimates made in the capital budgeting process
with the actual results.
b. Audits of the capital investment process should never be conducted because of the effect on
employee morale.
c. Audits of the capital investment process should never be used to identify and reward good planners
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d. Audits of the capital investment process create an environment in which planners will be tempted to
inflate their estimates of the benefits associated with the project to get it approved.
For a bank, Commercial Lending is a _____ department.
a. Production
b. Service
13. Which of the following is the most common starting point in the information gathering process for
budgeting?
a.
b.
c.
d.
The personnel forecast
The sales forecast
The production forecast
The projected income statement
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14. The agency theory of motivation deals with relationships between supervisors and workers
where the principals assign responsibility to the workers and the workers work on behalf of the
supervisors. Supervisors and workers, respectively, are called
a. principals and agents.
b. agents and employees.
c. masters and slaves.
d. lords and serfs.
15. The appropriate discount rate that analysts use in computing the present value of future cash flows is
comprised of which of the following:
a. an increase reflecting the inflation expected to occur over the life of the project.
b. a risk factor reflecting the riskiness of the project
c. a pure rate of interest reflecting the productive capability of capital assets
d. all of the above.
Labor efficiency problems
The purchase and use of higher than standard quality material
The purchase and use of lower than standard quality material
Machine efficiency problems
sh
a.
b.
c.
d.
Th
16. A favorable materials price variance coupled with an unfavorable material usage variance would
most likely result from:
Manufacturing companies are required to allocate joint-process costs in the valuation of
inventories and cost of goods sold for
a. financial reporting, only.
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b. tax reporting, only.
c. managerial reporting, only.
d. both financial and tax reporting.
17. What would the initial cash flows associated with an investment project include?
a. asset, freight and installation costs.
b. cash proceeds from disposing of existing assets made redundant or unnecessary by the new project. c.
income tax effect of gain(loss) on disposal of existing assets.
d. all of the above
18. Magno Cereal Corporation uses a standard cost system to collect costs related to the
A)
B)
C)
D)
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production of its ―crunchy pickle‖ cereal. The pickle (materials) standards for each batch of
cereal produced are 1.4 pounds of pickles at a standard cost of $3.00 per pound. During the
month of August, Magno purchased 78,000 pounds of pounds at a total cost of $253,500. Magno
used all of these pickles to produce 60,000 batches of cereal. What is Magno's materials quantity
variance for the month of August?
$1,500 unfavorable
$18,000 favorable
$19,500 unfavorable
D) $54,000 unfavorable
Standard quantity = Standard quantity per unit × Actual output
= 1.4 × 60,000 = 84,000
Materials quantity variance = Standard price × (Actual quantity − Standard quantity) =
$3 × (78,000 − 84,000) = $18,000 favorable
19. Which statement is true concerning decentralization?
a. Decentralization impedes local personnel response to a changing environment.
b. Decentralization requires significant oversight from top management.
c. Decentralization divides large, complex problems into manageable pieces.
d. All of the answers are correct.
sh
Th
19. Oaks Company has two support departments, Maintenance Department (MD) and Personnel
Department (PD), and two producing departments, P1 and P2. The Maintenance Department costs of
$30,000 are allocated on the basis of standard service used. The Personnel Department costs of $4,500 are
allocated on the basis of number of employees. The direct costs of Departments P1 and P2 are $9,000 and
$15,000, respectively.
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Data on standard service hours and number of employees are as follows:
MD
PD
P1
Standard service hours used
100
50
300
Number of employees
10
20
90
P2
150
90
Direct labor hours
250
50
50
250
Using the direct method, the cost of the Maintenance Department allocated to Department P1 is
a. $20,000.
b. $10,000.
c. $15,000.
d. $30,000.
SUPPORTING CALCULATIONS:
300/450  $30,000 = $20,000
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20. Plants Company has two support departments (S1 and S2) and two producing departments (P1 and
P2). Department S1 costs are allocated on the basis of number of employees, and Department S2 costs are
allocated on the basis of space occupied expressed in square feet.
Data on direct department costs, number of employees, and space occupied are as follows:
S1
S2
P1
P2
Direct dept. costs
$7,500
$11,000
$27,500
$30,000
Number of employees
10
5
20
25
Space occupied (sq. ft.)
1,000
500
1,500
2,500
If Plants uses the direct method, the ratio representing the portion of Department S2 allocated to P1 is
a. 1,500/4,000.
b. 1,500/5,000.
c. 1,500/5,500.
d. 1,500/2,000.
21. A variance is the difference between ______.
An actual result and a budgeted amount
The required number of inputs for the number of outputs.
A budgeted amount and a standard amount
A budgeted amount and a benchmark amount
Th
a.
b.
c.
d.
22. An unfavorable materials quantity variance indicated that:
Standard material allowed for output exceeds the actual usage of material.
Actual material price exceeds standard price.
Standard material price exceeds standard price.
Actual usage of material exceeds the standard material allowed for output.
sh
a.
b.
c.
d.
23. Which of the following would not be included as part of the periodic cash outflows associated with
an investment project?
a. savings for fixed and variable production costs
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b. selling, general, and administrative expenditures
c. opportunity costs of undertaking this particular project.
d. expenditures for fixed and variable production costs.
For a bank, Home Loans is a _____ department.
a. Production
b. Service
For a bank, Automobile Loan Processing is a ______ department.
a. Serivce
b. Production
24. Which of the following statements is correct regarding capital investments?
Capital investments may be funded out of excess cash reserves.
Capital investments should implement a company’s strategy.
Capital investments should have an internal rate of return greater than the cost of capital.
All of the above are correct
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a.
b.
c.
d.
25. The budget for May called for production of 9,000 units. Actual output for the month was 8,500 units
with total direct materials cost of $127,500 and total direct labor cost of $77,775. The direct labor
standards call for 45 minutes of direct labor per unit at a cost of $12 per direct labor-hour. The direct
materials standards call for one pound of direct materials per unit at a cost of $15 per pound. The actual
direct labor-hours were 6,375. Variance analysis of the performance for the month of May would
indicate:
a.
b.
c.
d.
$7,500 favorable materials efficiency variance.
$1,275 favorable direct labor efficiency variance.
$1,275 unfavorable direct labor efficiency variance.
$1,275 unfavorable direct labor price variance.
26. Which of the following is a key characteristic of divisional incentive compensation plans for
rewarding short-term performance?
Th
a. Cash bonuses and profit sharing
b. Deferred compensation
c. Employee stock options
sh
d. Retirement plans
27. Which of the following are key characteristic(s) of divisional incentive compensation plans?
a. cash bonuses and profit sharing for short-term performance.
b. deferred compensation for long-term incentive.
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c. special awards for particular actions or extraordinary performance.
d. All of the answers are correct.
Decentralization provides a basis for evaluating manager performance.
a. False
b. True
28. A causal model of lead and lag indicators of performance based on financial and non-financial
perspectives is known as which of the following?
a. balanced scorecard.
b. managerial report card.
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c. hierarchical scorecard.
d. management by objectives.
29. Which of the following responsibility centers would have a manager responsible for revenues, costs,
and investments?
a.
b.
c.
d.
Cost center
Profit center
Investment center
Expense center
30. Homer Company has a production schedule of 11,000 units and a budgeted sales volume of 10,000
units for the current year. In addition, 2,000 units are in beginning finished goods inventory. ____ units
are expected to be in ending finished goods inventory.
a.
b.
c.
d.
13,000
9,000
5,000
3,000
31. Because effective incentive compensation plans must induce individual behavior compatible
Th
with increasing the firm's wealth, for long-term incentives firms give
a. cash bonuses and profit sharing.
b. deferred compensation.
sh
c. special awards.
d. reorganizations.
A motive for fraud is basing manager compensation on accounting results.
a. True
b. False
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32. Which of the following departments would NOT be classified as a profit center?
a.
b.
c.
d.
Automotive department
Accounting department
Hardware department
Men’s shoes department
33. Which of these is an advantage for companies to award managerial performance based on a
subjective approach?
a. The subjective approach considers factors not explicitly captured in the formula
approach.
b. Managers know what reward they will get if they achieve expectations.
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c. Managers who do not fully trust their superiors tend to prefer this approach.
d. All of the answers are correct.
34. For next year, Dunphy Company has budgeted sales of 30,000 units, target ending finished goods
inventory of 1,000 units, and a beginning finished goods, inventory of 800 units. All other inventories are
zero. ____ units should be produced.
a.
b.
c.
d.
29,800
30,000
30,200
31,800
35. What does the term capital mean in the context of making capital expenditure decisions?
a. The source of funds typically reported as long-term liabilities and owners’ equity.
b. The funds with which a firm acquires assets
c. Long term assets.
d. None of the above.
Th
Decentralization benefits managers that depends on extensive guidance from top management.
a. True
b. False
a. True
b. False
sh
Decentralization impedes local personnel response to a changing environment.
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