The identification of cost drivers is perhaps the most important step in developing the cost estimate because:
A. It requires much more time than the other steps
B. There may be a number of relevant drivers, some not immediately obvious
C. The other steps
B. There may be a number of relevant drivers, some not immediately obvious
Data collected on the cost objects and cost drivers for cost estimation must be:
A. Consistent and accurate
B. Brief and limited
C. Varied
D. Concrete
E. Exhaustive
A. Consistent and Accurate
The objective of the fourth step in cost estimation, graphing the data, is intended to:
A. Allow for subjectivity in cost estimation
B. Enhance the cost estimation process
C. Identify unusual patterns
D. Show data in two dimensions
C. Identify unusual patterns
Selection and employment of the correct estimation method is:
A. Primarily subjective in nature
B. Relatively easy because only two effective methods exist
C. Dependent on the precision/cost tradeoff for the estimation objectives
D. Difficult because so m
C. Dependent on the precision/cost tradeoff for the estimation objectives
In least squares regression analysis, the cost to be estimated is the:
A. Independent variable
B. Dependent variable
C. Outlier
D. Cost object
E. Dummy variable
B. Dependent variable
Which of the following is not a correct pairing of estimated costs and its related cost driver?
A. Heating expense for a building; temperature to be maintained in the building
B. Fuel expense for a delivery truck; miles driven
C. Product design cost; numb
D. Sustainability cost in a manufacturing plant; machine-hours
Based on analyzing the relationship of total factory overhead (Y) to direct labor hours (X). The following relationship was found: Y = $1,000 + $2X The variable Y in the equation is an estimate of:
A. Total fixed costs
B. Total factory overhead
C. Total v
B. Total Factory Overhead
The standard error of the estimate (SE) in a regression analysis is:
A. A measure of reliability of each independent variable
B. A measure of explanatory power which is a number between zero and 1
C. A measure of the accuracy of the regression's estimates
C. A measure of the accuracy of the regression's estimates
The Lower 95% and Upper 95% shown in the Excel Analysis Toolpak Regression output suggests that:
A. We can be 95% confident that the coefficients of the independent variables will be within the ranges specified
B. We can be 95% confident that the precisio
A. We can be 95% confident that the coefficients of the independent variables will be within the ranges specified
Which of the following means that two or more independent variables are highly correlated with each other?
A. Multicollinearity
B. Standard error
C. t-value
D. Correlation
E. R-Squared
A. Multicollinearity
From a strategic management perspective, the primary reason a firm performs CVP analysis is to find the level of sales that:
A. Promises a satisfactory growth in revenue
B. Produces a desired (or targeted) level of profit for the firm
C. Will allow the fi
B. Produces a desired (targeted) level of profit for the firm
CVP analysis using activity-based costs will tend to shift some costs from fixed to variable classifications, resulting in:
A. A lower contribution margin per unit
B. Higher breakeven sales
C. Lower breakeven sales
D. A higher contribution margin per unit
E. Higher or lower breakeven sales, depending on batch size
A relatively low margin of safety ratio (MOS%) for a product is usually an indication that the product:
A. Requires heavy fixed cost to produce or sell
B. Has a high contribution margin
C. Is riskier than a product with a higher margin of safety ratio
D.
C. Is riskier than a product with a higher margin of safety ratio
CVP analysis with multiple products assumes that sales will continue at the same mix of products, expressed in either sales units or sales dollars This assumption is essential, because a change in the product mix will probably change:
A. The average varia
E. The weighted-average contribution margin (per unit or ratio)
In measuring the variable cost per unit, CVP analysis includes:
A. Both variable production and variable selling/distribution costs
B. Only variable distribution and selling costs
C. Only variable production costs
D. Only variable and semi-variable produc
A. Both variable production and variable selling/distribution costs
Which of the following is not an underlying assumption of a conventional CVP analysis?
A. Fixed costs, in total, do not change as sales mix or total sales volume change
B. Selling price per unit is unrelated to assumed sales volume
C. Variable costs per u
D. Learning Curve Effects (ie, productivity gains with experience)
During the current year, OutlyTech Corp. expected to sell 23,800 telephone switches. Fixed costs for the year were expected to be $11,852,200, the unit sales price was budgeted at $3,160, and unit variable costs were budgeted at $1,413. OutlyTech's margin
D. 17,016
During the current year, OutlyTech Corp. expected to sell 23,800 telephone switches. Fixed costs for the year were expected to be $11,852,200, the unit sales price was budgeted at $3,160, and unit variable costs were budgeted at $1,413. OutlyTech's margin
E. $53,769,562
In the current year, Becker Sofa Company expected to sell 11,900 leather sofas. Fixed costs for the year were expected to be $8,160,000; unit sales price was budgeted at $4,330; and unit variable costs were expected to be $2,210. Becker Sofa Company's mar
D. 8,051
Kelvin Co. produces and sells socks. Variable costs are budgeted at $3.90 per pair, and fixed costs for the year are expected to total $88,000. The selling price is expected to be $5.90 per pair. The sales dollars required for Kelvin Co to make a before-t
E. $289,100
Framing House, Inc. produces and sells picture frames. Variable costs are expected to be $16.00 per frame; fixed costs for the year are expected to total $126,000. The budgeted selling price is $23.00 per frame. The sales dollars required to make a before
D. $476,429
Which of the following illustrates how the level of operating profit changes over different levels of output/sales volume?
A. Profit-cost graph
B. Cost-revenue chart
C. Revenue-cost graph
D. Revenue-volume graph
E. Profit-volume graph
E. Profit-volume graph
Which of the following can use cost/volume/profit (CVP) analysis?
A. Service firms, but not organizations that are not-for-profit
B. Not-for-profit organizations, but not service firms
C. Not-for-profit organizations, service firms, and manufacturers
D. M
C. Not-for-profit organizations, service firms, and manufacturers
The name for a variety of methods used to examine how an amount will change if factors involved in predicting that amount change is: A. Sensitivity analysis
B. Contribution margin analysis
C. Factor analysis
D. Cost-volume-profit analysis
E. Cost analysis
A. Sensitivity Analysis
Cleaning Care Inc. expects to sell 10,000 mops. Fixed costs (for the year) are expected to be $10,000, unit sales price is expected to be $11.00, and unit variable costs are budgeted at $6.00. Cleaning Care's margin of safety (MOS) in units is:
A. 8,000
B
A. 8,000
In measuring variable cost per unit for cost-volume-profit (CVP) analysis purposes:
A. Both variable production and variable selling/distribution costs are included
B. Only variable selling/distribution costs are included
C. Only variable and semi-variabl
A. Both variable production and variable selling/distribution costs are included
Which of the following items is NOT useful for addressing risk and uncertainty in CVP analysis?
A. Decision trees and decision tables
B. Monte Carlo Simulation (MCS) analysis
C. Regression analysis
D. What-if analysis
E. Sensitivity analysis
C. Regression Analysis
Which of the following is a technique most suited to deal with uncertainty regarding the inputs to a CVP (profit-planning) model?
A. Constrained optimization analysis
B. Sensitivity analysis
C. Net present value (NPV) analysis
D. Regression analysis
E. Li
B. Sensitivity Analysis
A plan of dollar amounts to be spent on long-term projects is called a:
A. Capital budget
B. Sales budget
C. Cash budget
D. Rolling budget
E. Rolling financial forecast
A. Capital budget
A plan showing the units of goods expected to be sold and the expected revenue from sales is called the:
A. Cash receipts budget
B. Sales receipts budget
C. Sales budget
D. Selling expense budget
E. Cash budget
C. Sales budget
The practice of maintaining budgets for the same number of future periods, revising those budgets as each period is completed and adding a new budget each period, is called:
A. Cyclical budgeting
B. Rolling budgets (or, rolling financial forecasts)
C. Kai
B. Rolling budgets (or, rolling financial forecasts)
Which of the following factors is least likely to be considered in preparing a sales budget?
A. Proposed selling expenses
B. The cash budget
C. Past sales volume
D. General economic and industry conditions
E. Plant capacity
B. The cash budget
Maintaining a constant production level in a firm has the advantage of:
A. Allowing the firm to compete successfully as a differentiator
B. Supporting the organization's move to JIT (just-in-time)
C. Minimizing the amount of inventory held
D. Allowing a s
D. Allowing a stable employment level
Which of the following is not an alternative approach to traditional budgeting practices?
A. Operations budgeting
B. Kaizen budgeting
C. Zero-based budgeting (ZBB)
D. Activity-based budgeting (ABB)
E. Time-driven activity based budgeting (TDABB)
A. Operations budgeting
Which one of the following is a plan that will allow a manufacturing firm to satisfy its sales goals and have on hand the desired amount of inventory at the end of the budget period?
A. Production budget
B. Direct materials usage budget
C. Sales budget
D.
A. Production budget
A negotiated budgeting process is:
A. Is generally completed after one round of negotiation
B. Less costly to implement than an imposed (i.e., authoritative) budget
C. Less effective than an authoritative budget
D. An alternative way to express a "bottom-
D. An alternative way to express a "bottom-up" approach to budget preparation
The cash budget does not include:
A. Cash outflows for acquisition of fixed (long-term) assets
B. Cash outflows for purchases of direct materials
C. Cash inflows from the collection of receivables
D. nterest paid and interest received
E. All sales revenue
E. All sales revenue
Which one of the following is a budgeting approach that explicitly demands continuous improvement and that incorporates expected improvements in the resultant budget?
A. Activity-based budgeting (ABB)
B. Flexible budgeting
C. Time-driven activity-based bu
E. Kaizen Budgeting
Zero-base budgeting (ZBB):
A. Has as the primary objective to reduce budget expenditures to zero
B. Involves the review of changes made to an organization's original budget
C. Involves rigorous review of each cost item before inclusion in the budget
D. Do
C. Involves rigorous review of each cost item before inclusion in the budget
Joe's Mart policy is to have 20.00% of the next month's sales on hand at the end of the current month Projected sales for August, September, and October are 27,600 units, 22,000 units, and 33,000 units, respectively How many units must be purchased in Sep
B. 24,200
The Johann's Professional Service Company expects 80.00% of sales for cash and 20.00% on credit The company collects 79.00% of its credit sales in the month following sale, 16.00% in the second month following sale, and 5.00% are not collected Expected sa
E. $49,306
Blake Company has $16,400 cash at the beginning of June and anticipates $54,000 in cash receipts and $37,590 in cash disbursements The company requires a minimum cash balance of $21,000 Any excess cash over the minimum desired balance is used to pay down
D. $4,590
Oracle Supply Co supply forecasts purchases of 16,300 widgets in June It sells the widget at $13.00 per unit. The company has 1,100 units on hand on June 1, The desired ending inventory of widgets on June 30 is to be 20.00% lower than the beginning invent
D. $214,760
Worton Distributing expects its September sales to be 27.00% higher than its August sales of $163,000 Purchases were $110,000 in August and are expected to be $129,000 in September All sales are on credit and are expected to be collected as follows: 30.00
C. $72,073
Tony's Fashions forecasts sales of $330,000 for the quarter ended December 31 Its gross profit rate is 20.00% of sales, and its September 30 inventory is $110,000 If the December 31 inventory is targeted at $44,000, budgeted purchases for the quarter shou
C. $198,000
The process of examining how a change in a single item in a budget (e.g., sales volume) affects one or more items in the budget (e.g., budgeted sales revenue and budgeted operating income) is generally referred to as: A. Flexible budgeting
B. Uncertainty
E. What-if analysis
Capital One produces a single product, which it sells for $8.70 per unit. Variable costs per unit equal $3.50. The company expected total short-term fixed costs to be $7,870 for the coming month, at the projected sales level of 22,000 units. Management is
D. Profit should decrease by approximately $9,614 per month
All of the following represent alternative approaches to the traditional budget-preparation process except which one?
A. Continuous-improvement budgeting
B. Master budgeting
C. Time-driven activity based budgeting (TDABB)
D. Kaizen budgeting
E. Activity-b
B. Master budgeting
The proper treatment of the cost of unused capacity, as identified through the use of an activity-based budgeting (ABB) system, is: A. To charge the amount to all products produced during the area (via overhead application rates)
B. To charge the amount t
E. To charge the amount to the product line, department, or a given manager within the organization where the decision to acquire the capacity was made
The type of compensation plan that focuses on the difference between actual performance (sales, operating income, etc.) and budgeted performance is refers to: A. The use of "rolling financial forecasts"
B. The use of a fixed-performance contract
C. The us
B. The use of a fixed-performance contract
The act of encouraging non-value-adding actions on the part of management in order to improve indicated performance is referred to as:
A. The use of fixed-performance contract
B. Linear optimization analysis
C. The use of a relative-performance contract
D
D. Gaming the performance indicator
Which of the following methods is potentially useful for helping an organization align its capital expenditures with its strategy?
A. Multiproduct cost-volume-profit analysis
B. Strategic cost management
C. Linear optimization (eg, linear programming mode
E. Analytical hierarchy process (AHP)
Which of the following statements regarding capital investment analysis is false?
A. A long-term planning horizon is assumed
B. Need to incorporate income-tax effects in the analysis, for both revenues (gains) as well as expenses (losses)
C. Discounted ca
E. Benefits of potential investment projects are conceptually expressed in terms of accounting income (or reduction in costs)
Which of the following is not a characteristic of capital budgeting post-audits?
A. They provide feedback to managers regarding the soundness of their decision-making
B. They may be cost-prohibitive to accomplish
C. They are sometimes difficult to impleme
E. They encourage managers to build slack into capital investment proposals
Results from the net present value (NPV) method and the internal rate of return (IRR) method may differ between projects if the projects differ in all of the following except: A. Cost of capital (ie, discount rate)
B. Length of useful life of the two proj
C. Book (accounting) rate of return on the two projects
Intolerance of uncertainty often leads managers to:
A. Invest in a few large, sequential investments
B. Favor projects that are mutually exclusive
C. Choose projects with short payback periods
D. Invest heavily in strategic-related investments
E. Invest i
C. Choose projects with short payback periods
Which one of the following capital budgeting decision models consists of dividing the total initial investment outlay by annual after-tax cash inflows (when such inflows are assumed equal over time)?
A. Book (accounting) rate of return
B. Internal rate of
D. Payback period
Which one of the following is the estimated rate (ie, percentage) that makes the discounted present value of future cash flows equal to the initial investment? A. Payback period, in years
B. Weighted-average cost of capital (WACC)
C. Book (accounting) rat
E. Internal rate of return (IRR)
Which one of the following is an advantage of the book (accounting) rate of return method for analyzing capital investment proposals? A. It is not affected by different accounting methods
B. The accounting rate of return is generally approximately equal t
E. Data for calculating the return are typically readily available
For a capital investment project, a net present value (NPV) of $500 indicates that the:
A. Present value of cash outflows exceeds the present value of cash inflows
B. Total cash outflows for the project are expected to be $500
C. Internal rate of return (
E. Project's true or economic rate of return exceeds the hurdle (discount) rate
Which one of the following is true for the internal rate of return (IRR) method?
A. It makes it easy to incorporate multiple costs of capital
B. It can be used to make optimal decisions regarding mutually exclusive investment projects
C. It assumes cash p
D. Unlike the NPV method, it assumes only a single discount rate
In a discounted cash flow (DCF) analysis, a required incremental investment in net working capital:
A. Should be amortized over the useful life of the equipment
B. Should be treated as an immediate cash outflow that is later recovered when it is no longer
B. Should be treated as an immediate cash outflow that is later recovered when it is no longer needed
If a company is in the situation of having unlimited capital funds, the best decision rule, considering only financial factors, is for the company to invest in all projects in which: A. The net present value (NPV) is greater than the cost of capital
B. Th
D. The NPV is greater than zero
For a given income tax rate, t, after-tax cash operating receipts are calculated as follows:
A. Taxable cash receipt times (1 - t)
B. Taxable case receipt times t
C. Taxable cash receipt divided by (1 - t)
D. Taxable cash receipt divided by t
E. Taxable c
A. Taxable cash receipt times (1-t)
What is the present value of $1 received four years from now (rounded to two decimal places) if the discount rate is 12.00%?
A. $.69
B. $.74
C. $.64
D. $.59
E. $.54
C. $.64
Pique Corporation wants to purchase a new machine for $300,000. Management predicts that the machine can produce sales of $210,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (exclu
B. $84,386
Pique Corporation wants to purchase a new machine for $300,000. Management predicts that the machine can produce sales of $210,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (exclu
C. Somewhere between 17.49% and 22.49%
Quip Corporation wants to purchase a new machine for $310,000. Management predicts that the machine will produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (exclu
D. $91,520
Quip Corporation wants to purchase a new machine for $310,000. Management predicts that the machine will produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (exclu
E. 17.8%
If the net present value (NPV) of an investment proposal is positive, it would indicate that the:
A. PV of after-tax cash outflows exceeds the PV of after-tax cash inflows
B. Internal rate of return (IRR) is equal to the discount percentage used in the NP
C. Internal rate of return (IRR) for this project is greater than the discount rate used in the NPV computationIf the NPV > 0, it must be true that the IRR on the investment > discount rate (cost of capital)
When evaluating capital budgeting decision models, the payback period emphasizes:
A. Average net income divided by average investment
B. Average after-tax cash inflow divided by average investment
C. Profitability
D. Liquidity
E. Cost of capital
D. Liquidity
Olsen Inc. purchased a $610,000 machine to manufacture a specialty tap for electrical equipment. The tap is in high demand and Olsen can sell all that it could manufacture for the next 9 years. The government exempts taxes on profits from new investments
B. 25.1%
If a company is faced with limited capital funds for investment (ie, the company faces capital rationing), the best general method to employ to assess individual project profitability is: A. Net present value (NPV)
B. Discounted payback
C. Profitability i
C. Profitability index (PI)
A widely used approach that managers use to recognize uncertainty about individual items and to obtain an immediate financial estimate of the financial consequences of possible prediction errors is:
A. Sensitivity analysis
B. Learning curve analysis
C. Ex
A. Sensitivity analysis
Which of the following statements regarding real options is true?
A. The farther away the expiration date, the less valuable the option is
B. They allow decision makers to react to unfavorable, but not favorable, future information/news
C. Capital budgeti
D. Conventional DCF decision models cannot incorporate the effects of real options
The estimated value of a real option:
A. Is inversely related to estimated volatility of returns for a proposed project
B. Is affected by essentially the same set of factors that affect the value of financial options
C. Decreases as the underlying risk of
B. Is affected by essentially the same set of factors that affect the value of financial options
Which of the following characteristics is not true of the modified internal rate of return (MIRR)?
A. It cannot be used reliably to choose between mutually exclusive projects
B. It is complex to compute, if done manually
C. Its use may not lead to an opti
D. Unlike IRR, MIRR does not consider the time value of money
The decision technique that measures the estimated performance of a capital investment by dividing the project's annual after-tax income by the average investment cost is called the:
A. Internal rate of return (IRR) on the proposed investment
B. Break-eve
E. Accounting (book) rate of return (ARR) on the investment
Which of the following is not an important advantage of the net present value (NPV) method over the internal rate of return (IRR) method in evaluating capital investment proposals? A. IRR relies on discounted cash-flow analysis, while NPV does not
B. NPV
C. NPV can be used to determine an optimum capital budget under conditions of capital rationing, while IRR cannot
Which of the following is an example of a sunk cost in a capital budgeting decision regarding the purchase of new equipment for a profitable business that pays taxes? A. The disposal (salvage) value of the equipment to be replaced
B. The additional net wo
C. The original purchase price of the equipment to be replaced
Which of the following items has no after-tax consequences in the analysis of a capital investment proposal?
A. Reduction of working capital
B. Gain or loss on the disposal of the investment at the end of its useful life
C. Salvage value of an existing as
E. Employee severance compensation
The total operating income variance for a period reveals whether a company has achieved:
A. Control of basic business processes
B. An adequate return on investment (assets) during the period
C. The sales level budgeted for the period
D. The master budgete
D. The master budget operating income for the period
The arrival of new manufacturing techniques such as automation, flexible manufacturing systems, and cluster or cell manufacturing has: A. Not had an effect on the importance of direct labor variances
B. De-emphasized the importance of direct labor cost va
C. Emphasized the importance of direct labor variances
The "flexible budget" can best be described as a budget that adjusts:
A. Revenues and expenses for changes in output (such as sales volume)
B. Revenues for sales-dollar changes
C. For selling price and cost variances, but not efficiency variances
D. For e
A. Revenues and expenses for changes in output (such as sales volume)
Differences in expectation levels lead to two basic types of standards in a standard cost system:
A. Ideal and currently attainable
B. Normal and conceptual
C. Ideal and real
D. Current and future
E. Attainable and real
A. Ideal and currently attainable
A standard cost system should be designed to generate and report cost and revenue variances:
A. Only when negative in impact
B. As soon as possible
C. Only when requested by decision-makers
D. Coincidental with regular reporting intervals
E. Only when sig
B. As soon as possible
A standard that sets the performance criterion at a level that workers with proper training and experience can attain most of the time without extraordinary effort is a(n): A. Practical standard
B. Authoritative standard
C. Currently attainable standard
D
C. Currently attainable standard
For a direct material, which one of the following is the difference between the actual and standard unit price of the direct material multiplied by the actual quantity of the material purchased? A. Direct materials volume variance
B. Direct materials flex
C. Direct Materials purchase price variance
The effect on sales, expenses, or operating income of changes in units sold is measured by the:
A. Sales price variance
B. Flexible-budget variance
C. Production-volume variance
D. Sales-volume variance
E. Operating income flexible-budget variance
D. Sales-volume variance
Which of the following is not a plausible cause of a direct labor efficiency variance?
A. Inadequate supervision of workers
B. Failure to update the standard cost to conform to wage provisions in the union contract
C. Poor scheduling of work
D. Materials
A. Failure to update the standard cost to conform with wage provisions in the union contract
Flexible budgets and standard costs are useful for assessing:
A. Strategic performance during the most recent period
B. Operating performance during the period
C. Management control
D. Short-term financial performance
E. The level of control over basic bu
D. Short-term financial performance
In September, Larson Inc. sold 42,000 units of its only product for $257,000 and incurred a total cost of $237,200, of which $26,300 is fixed costs. The flexible budget for September showed total sales of $320,000. Among variances of the period were: tota
D. $19,800
In September, Larson Inc. sold 42,000 units of its only product for $257,000 and incurred a total cost of $237,200, of which $26,300 is fixed costs. The flexible budget for September showed total sales of $320,000. Among variances of the period were: tota
E. $31,300
In September, Larson Inc. sold 42,000 units of its only product for $257,000 and incurred a total cost of $237,200, of which $26,300 is fixed costs. The flexible budget for September showed total sales of $320,000. Among variances of the period were: tota
C. $115,200
Shoemaker Perkins Company uses a standard cost system and had 420 pounds of raw material X15 on hand on September 1. The standard cost is $10.72 per pound. The standard calls for 2.10 pounds of material X15 for each unit of the product manufactured. The c
E. $14, 183
Shoemaker Perkins Company uses a standard cost system and had 420 pounds of raw material X15 on hand on September 1. The standard cost is $10.72 per pound. The standard calls for 2.10 pounds of material X15 for each unit of the product manufactured. The c
B. $9.62
Sheldon Company manufactures only one product and uses a standard cost system. During the past month, the manufacturing operations had the following variances: Direct labor rate variance = $32,000 Favorable. Direct labor efficiency variance = $53,000 Unfa
D. 3,920
Ally Mfg. uses a standard cost system and its July production of 1,890 units involved actual direct labor costs of $258,200 for 5,880 hours worked. The budget for July called for production of 2,100 units with 6,500 direct labor hours at $42.00 per hour.
A. $1,260 unfavorable
Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $26,700 unfavorable. Direct labor efficiency variance = $75,000 (?) The standard calls for 3.20 direct labor hours per unit of output
A. $31.71
Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $26,700 unfavorable. Direct labor efficiency variance = $75,000 (?) The standard calls for 3.20 direct labor hours per unit of output
C. 4,578