QUESTION 4 The gross margin is the same as the contribution margin. is the same

Question

QUESTION 4

The gross margin

is the same as the contribution margin.

is the same as operating income.

is sales less the cost of the inventory that generated those sales.

is found on the balance sheet.

2 points   

QUESTION 5

Total Quality Management (TQM) strives to

Improve performance with goal setting.

Reduce raw materials and finished goods inventories.

Employ worldwide financial accounting standards.

Maximize the company's revenues.

2 points   

QUESTION 6

The comprehensive planning document that incorporates a number of individual budgets is the

capital acquisitions budget.

master budget.

material purchases budget.

sales forecast.

2 points   

QUESTION 7

Horizontal analysis is

also called common size analysis

consists of analyzing changes in financial statements across time.

consists of analyzing financial statements in terms of a base amount

restates the income statement line items as a percentage of sales.

2 points   

QUESTION 8

A contract which specifies that the suppler will be paid for the cost of production as well as some fixed amount or percentage of cost is called a(n)

approved overrun.

cost-plus contract.

allocation plan.

indirect cost budget.

2 points   

QUESTION 9

The sum of the present values of all cash flows (inflows and outflows) is called the

payback cost.

internal rate of return.

net present value.

required rate of return.

2 points   

QUESTION 10

Which of the following techniques uses time value of money concepts?

payback method

internal rate of return

accounting rate of return

relative sales value method

2 points   

QUESTION 11

The cost of goods sold is found on which financial statement?

Income Statement

Statement of Retained Earnings

Balance Sheet

Statement of Cash Flows

2 points   

QUESTION 12

Cat Food Company has two divisions, Turkey and Fish. Operating results for the two divisions are as follows:

The required rate of return for the Cat Food Company is 18%.

Reference: Ref 12-4

What is the return on investment for the Turkey Division?

18%

15%

20%

16.9%

2 points   

QUESTION 13

How many variances related to direct labor are usually calculated?

one

two

four

at least five

2 points   

QUESTION 14

Which of the following ratios would be least useful in determining a company's ability to pay its expenses and liabilities?

current ratio

acid-test ratio

price-earnings ratio

times interest earned ratio

2 points   

QUESTION 15

If the material quantity variance is favorable, the

material price variance will be unfavorable.

production manager has used materials efficiently.

quantity purchased is less than the quantity used.

actual price per unit is less than the standard price per unit.

2 points   

QUESTION 16

The efficient use of assets is indicated by

turnover ratios

debt-related assets

the debt to equity ratio

the current ratio

2 points   

QUESTION 17

Costs which can be eliminated in whole or in part if a particular business segment is discontinued are called:

sunk costs.

opportunity costs.

avoidable costs.

irrelevant costs.

2 points   

QUESTION 18

Which of the following is not an advantage of decentralization for a company?

subunit managers have better information

subunit managers will act to benefit the organization as a whole

subunit managers can respond quicker to changing circumstances

subunit managers can receive training to move into top level management positions

2 points   

QUESTION 19

A company has unlimited funds to invest at its discount rate. The company should invest in all projects having:

an internal rate of return greater than zero.

a net present value greater than zero.

discount rate greater than the simple rate of return greater.

a payback period greater than the project's estimated life.

2 points   

QUESTION 20

The purpose of a flexible budget is to:

allow management some latitude in meeting goals.

eliminate fluctuations in production reports by ignoring variable costs.

compare actual and budgeted results at virtually any level of activity.

reduce the time to prepare the annual budget.

2 points   

QUESTION 21

The Stale Store has 12,000 cans of tuna fish just a week past the expiration date. Each can cost $0.33. The cans could be sold as is for $0.20 each, or relabeled and sold as gourmet cat food. The cost of relabeling the cans would be $0.04 per can and the cans would then sell for $0.23 per can. What should be done with the cans and why?

The cans should be thrown away since there will be a loss with the other two alternatives.

The cans should be relabeled into cat food since the sales price increases $0.03.

The cans should be sold as is the $0.20 per can and they should not be relabeled.

It doesn't matter what you do since all alternatives result in a loss.

2 points   

QUESTION 22

The higher the accounts receivable turnover,

the faster the receivable is collected.

the faster credit sales are made.

the longer it takes to collect a receivable.

both A and B

2 points   

QUESTION 23

A cost center

does not have responsibility for generating revenue.

should be evaluated using ROI.

has a manager who is instrumental in setting prices for the product.

has a set of performance measures that is more complex than those for an investment center.

2 points   

QUESTION 24

Which of the following benefits could an organization reasonably expect from an effective budget program?

Better control of the organization's costs.

Better coordination of an organization's activities.

Better communication of the organization's objectives.

All of these.

2 points   

QUESTION 25

ROI is used to evaluate

profit centers.

standard prices.

investment centers.

exceptional variances.

2 points   

QUESTION 26

Smith Company manufactures widgets. Newman Company has approached Smith with a proposal to sell the company one of the components used to make widgets at a price of $100,000 for 50,000 units. Smith is currently making these components in its own factory. The following costs are associated with this part of the process when 50,000 units are produced:

$44,000

20,000

60,000

$124,000

The manufacturing overhead consists of $32,000 of costs that will be eliminated if the components are no longer produced by Smith. The remaining manufacturing overhead will continue whether or not Smith makes the components. Answer the following questions from Smith's point of view.

Reference: Ref 7-2

Should Smith make or buy the components for the widgets?

Buy from Newman because the incremental savings are $24,000.

Buy from Newman because the incremental savings are $28,000.

Continue to make them because the incremental cost of buying from Newman is $32,000.

Continue to make them because the incremental cost of buying from Newman is $4,000.

2 points   

QUESTION 27

Standard costs are developed for all of the following except

direct materials.

commissions per unit.

manufacturing overhead.

direct labor.

2 points   

QUESTION 28

Which of the following statements about the payback period method is not true?

All other things being equal, a company would prefer a project with a short payback period.

The payback period method ignores the time value of money.

The payback period method is more sophisticated and yields better decisions than the internal rate of return method.

The payback period method does not take into account the total stream of cash flows.

2 points   

QUESTION 29

Residual income is:

Net operating income plus the minimum required return on average operating assets.

Net operating income less the minimum required return on average operating assets.

Contribution margin plus the minimum required return on average operating assets.

Contribution margin less the minimum required return on average operating assets.

2 points   

QUESTION 30

To measure controllable production inefficiencies, which of the following is the best basis for a company to use in establishing the standard hours allowed for the output of one unit of product?

Average historical performance for the last several years.

Engineering estimates based on ideal performance.

Engineering estimates based on attainable performance.

The hours per unit that would be required for the present workforce to satisfy expected demand over the long run.

2 points   

QUESTION 31

The difference between standard and actual costs is a(n)

actual cost overrun.

variance by exception.

slack amount.

standard cost variance.

2 points   

QUESTION 32

The rate of return which equates the net present value to zero is the

hurdle rate.

internal rate of return.

payback return.

accounting rate of return.

2 points   

QUESTION 33

A company is trying to decide whether to keep or drop the sporting goods department in its department store. If the segment is dropped, the manager will be fired. The manager's salary, in relation to the decision to keep or drop the sporting goods department, is

avoidable and therefore relevant

not avoidable and therefore relevant

sunk and therefore not relevant

the same for all alternatives and therefore not relevant

2 points   

QUESTION 34

Capital expenditure decisions

are also called capital budgeting decisions.

involve the acquisition of long-lived assets.

have a major, long-term effect on a firm's operations.

All of the above are correct.

2 points   

QUESTION 35

$135,000

$180,000

$157,500

$120,000

2 points   

QUESTION 36

Which type of analysis would highlight the percentage increase in inventory from one year to the next?

Horizontal analysis

Vertical analysis

Common size analysis

Comprehensive analysis

2 points   

QUESTION 37

Menlo Shoe Company is trying to decide whether or not to continue making bowling shoes. The following information is available for the segments. Assume that all direct fixed costs could be avoided if a segment is dropped and that the total common fixed costs would remain unchanged if the bowling shoes were dropped.

Bowling Shoes

Athletic Shoes

Boots

$120,000

$420,000

$360,000

$64,000

$220,000

$140,000

$56,000

$200,000

$220,000

$40,000

$70,000

$90,000

$20,000

$70,000

$60,000

($4,000)

$60,000

$70,000

Reference: Ref 7-5

If bowling shoes are dropped, overall net income would:

Decrease by $4,000

Increase by $4,000

Decrease by $16,000

Increase by $16,000

2 points   

QUESTION 38

A favorable materials price variance of $380 and an unfavorable materials quantity variance of $120 were reported during the current year. Based on these variances, you can conclude that:

the actual cost per unit of materials was less than the standard cost per unit.

the actual usage of materials was less than the standard allowed.

more materials were purchased than were used.

more materials were used than were purchased.

2 points   

QUESTION 39

Cat Food Company has two divisions, Turkey and Fish. Operating results for the two divisions are as follows:

The required rate of return for the Cat Food Company is 18%.

Reference: Ref 12-4

What is the residual income for the Fish Division?

$0

($12,000)

12,000

10,800

2 points   

QUESTION 40

The ratio of total cash, marketable securities, accounts receivable, and short-term notes to current liabilities is:

the debt-to-equity ratio.

the current ratio.

the acid-test ratio.

working capital.

2 points   

QUESTION 41

The variance that is most useful in assessing the performance of the purchasing department manager is:

the materials quantity variance.

the materials price variance.

the labor rate variance.

the labor efficiency variance.

2 points   

QUESTION 42

A basic idea underlying __________________ is that a manager should be held responsible only for those items that the manager can actually control to a significant extent.

participative budgeting

planning and control

responsibility accounting

the master budget

2 points   

QUESTION 43

An annuity is

the same as the payback period.

a series of equal payments.

necessary in order to calculate the net present value.

a method of calculating depreciation in order to provide a tax shield.

2 points   

QUESTION 44

0.2 years.

1.0 years.

3.0 years.

5.0 years.

2 points   

QUESTION 45

Fenway Company has budgeted the following amounts for sales in 2005:

Sales

$98,000

67,000

108,000

82,000

An analysis of past patterns of receipts shows that 60% of the sales dollars are received in the month of the sale and 40% are received in the following month. Assuming this pattern continues, the amount of cash to be received in May and June is

$85,600 and $83,400, respectively.

$97,600 and $97,600, respectively.

$91,600 and $81,600, respectively.

$79,400 and $91,600, respectively.

2 points   

QUESTION 46

the net present value of project C will be the highest.

the internal rate of return of projects A and C cannot be computed.

the net present value and the internal rate of return will be the same for all three projects.

both A and B above.

2 points   

QUESTION 47

When preparing a direct materials budget, the required purchases of raw materials in units equals:

raw materials needed to meet the production schedule + desired ending inventory of raw materials beginning inventory of raw materials.

raw materials needed to meet the production schedule desired ending inventory of raw materials beginning inventory of raw materials.

raw materials needed to meet the production schedule desired ending inventory of raw materials + beginning inventory of raw materials.

raw materials needed to meet the production schedule + desired ending inventory of raw materials + beginning inventory of raw materials.

2 points   

QUESTION 48

Kinsi Corporation manufactures five different products. All five of these products must pass through a stamping machine in its fabrication department. This machine is Kinsi's constrained resource. Kinsi would make the most profit if it produces the product that:

uses the lowest number of stamping machine hours.

generates the highest contribution margin per unit.

generates the highest contribution margin ratio.

generates the highest contribution margin per stamping machine hour.

2 points   

QUESTION 49

Volckmann Company's policy is to keep 25% of the next month's sales in ending inventory. If there are 1,200 units in inventory at the end of March, sales in April are expected to be 4,800 units, and sales in May are expected to be 9,000 units, how many units should be produced in April?

6,000

7,050

5,850

3,750

2 points   

QUESTION 50

The usual starting point for a master budget is:

the direct materials purchase budget.

the budgeted income statement.

the sales forecast or sales budget.

the production budget.

is the same as the contribution margin.

is the same as operating income.

is sales less the cost of the inventory that generated those sales.

is found on the balance sheet.

Explanation / Answer

4.Answer

   Gross margin is sales less the cost of the inventory that generated those sales

Gross margin is net sales less the cost of goods sold. Generally, it is calculated as the selling price of an item, less the cost of goods sold (production or acquisition costs, essentially).The gross margin reveals the amount that an entity earns from the sale of its products and services, before the deduction of any selling and administrative expenses.

5.Answer

Total Quality Management (TQM) strives to improve performance with goal setting.

TQM leads to continuously improving results, in all aspects of work, as a result of continuously improving capabilities, people, processes, technology and machine capabilities.

Continuous improvement must deal not only with improving results, but more importantly with improving capabilities to produce better results in the future.

6. Answer

The comprehensive planning document that incorporates a number of individual budgets is the

Master budget

A master budget is a set of interconnected budgets of sales, production costs, purchases, incomes, etc. and also includes pro forma financial statements . At the end of each period, actual results can be compared with the master budget and necessary control actions can be taken.

7.Answer :

Horizontal analysis is consists of analyzing changes in financial statements across time.

Horizontal analysis of financial statements involves comparison of a financial ratio, a benchmark, or a line item over a number of accounting periods. This method of analysis allows the assessment of relative changes in different items over time. It also indicates the behavior of revenues, expenses, and other line items of financial statements over the course of time.

Accounting periods can be two or more than two periods. Accounting period can be a month, a quarter or a year.During the investment appraisal, the number of accounting periods for analysis is based on the time horizon under consideration.

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