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Employees
C. Competitor
THEORY D. Internal business processes
6. Contribution margin profit after interests and preferred
1. Which of the following costs should consider the tax shield dividends =
effect in computing the costs of capital? A. Degree of operation leverage
A. Cost of debt B. Degree of financial leverage
B. Cost of common stock C. Degree of total leverage
C. Cost of preferred stock D. No meaningful amount
D. Cost of retained earnings 7. If an increase in product price by 5% causes a decrease in
2. Which of the following is not considered in the cash quantity demanded by the same percentage, then the demand
conversion cycle? for the product is said to be
A. Receivable collection period A. Elastic
B. Debt repayment period B. Unit-elastic
C. Inventory conversion period C. Inelastic
D. Payable deferral period D. Perfectly Elastic
3. Cash flows from capital budgeting projects are assumed to 8. Under the high-low method, the unit variable cost closely
be received resembles the math concept of
A. At the beginning of the year A. Y-intercept
B. Evenly during the year B. X-intercept
C. At the end of the year C. Slope of the line
D. At a certain point of the year D. Independent variable
4. In the absence of shutdown costs, 9. Profit under variable costing fluctuates with
A. Shutdown point is higher than breakeven point A. Sales only
B. Shutdown point is equal to the breakeven point B. Production only
C. Shutdown point is lower than breakeven point C. Both sales and production
D. One cannot determine the relationship between shutdown D. Neither sales nor production
point and breakeven point 10. The path that has the highest slack time in the PERT
5. The balanced scorecard approach does not require looking network is
at performance from which of the following perspectives? A. Critical path
A. Customer B. Longest path
C. Shortest path 16. Identify the term that does not belong to the group.
D. Psychopath A. Differential cost
11.Which of the following is an invalid measure of B. Prevention cost
productivity? C. Appraisal cost
A. Partial operational D. Internal failure cost
B. Partial financial 17. Which of the following capital budgeting techniques is
C. Total operational non-discounted?
D. Total financial A. Simple rate of return
12.Which of the following situations is among the concerns of B. Sophisticated rate of return
a controller (as opposed to those of a treasurer)? C. Benefit-cost ratio
A. The company is in need of financing from external sources. D. Net present value
B. The company is already late in filing its monthly VAT returns. 18. Identify the term that does not belong to the group.
C. The company is guilty of unplanned material bank overdraft. A. Probability analysis
D. The company is in default of its account payable to B. Regression analysis
suppliers. C. High-low method
13. A firms working capital financing requirements may be D. Scattergraph method
divided into 19. A system not used in inventory management.
A. Aggressive and conservative A. Lockbox system
B. Seasonal and permanent B. Economic order quantity
C. Current and non-current C. Materials requirement planning system
D. Internal and external D. ABC system
14. Dividend yield multiplied by price-earnings ratio 20. A factor that is dealt with by both linear programming and
A. Pay-out ratio best product combination.
B. Retention ratio A. Efficiency
C. Equity ratio B. Productivity
D. Earnings per share C. Solvency
15. A term descriptive of managerial accounting. D. Scarcity
A. Historical financial statements 21. A(n) ________ cost increases or decreases in intervals as
B. Generally accepted accounting principles activity changes.
C. Discretionary a. historical cost
D. Regulatory
b. fixed cost b. detection costs d. failure costs
c. step cost 28.The estimated maximum potential activity for a specified
d. budgeted time is:
22. Which of the following is not a product cost component? a. theoretical capacity c. normal capacity
a. rent on a factory building b. practical capacity d. expected capacity
b. indirect production labor wages 29. Refer to Zenith Corporation. Assume that Zenith has
c. janitorial supplies used in a factory underapplied overhead of $37,200 and that this amount is
d. commission on the sale of a material. What journal entry is needed to close the overhead
23. Which of the following always has a direct cause-effect account? (Round decimals to nearest whole percent.)
relationship to a cost? a. Debit Work in Process $8,456; Finished Goods $13,294; Cost
Predictor Cost Driver of Goods Sold $15,450 and credit Overhead $37,200
a. yes yes b. Debit Overhead $37,200 and credit Work in Process $8,456;
b. yes no Finished Goods $13,294; Cost of Goods Sold $15,450
c. no yes c. Debit Work in Process $37,200 and credit Overhead $37,200
d. no no d. Debit Cost of Goods Sold $37,200 and credit Overhead
24.The distinction between direct and indirect costs depends $37,200
on whether a cost 30.If a firm produces more units than it sells, absorption
a. is controllable or non-controllable. costing, relative to variable costing, will result in
b. is variable or fixed. a. higher income and assets.
c. can be conveniently and physically traced to a cost object b. higher income but lower assets.
under consideration. c. lower income but higher assets.
d. will increase with changes in levels of activity. d. lower income and assets.
25.Costs that are incurred for monitoring and inspecting are: 31. A functional classification of costs would classify
a. prevention costs c. appraisal costs "depreciation on office equipment" as a
b. detection costs d. failure costs a. product cost.
26.Costs that are incurred to preclude defects and improper b. general and administrative expense.
processing are: c. selling expense.
a. prevention costs c. appraisal costs d. variable cost.
b. detection costs d. failure costs 32. If a firm uses variable costing, fixed manufacturing
27. Costs that are incurred when customers complain are: overhead will be included
a. prevention costs c. appraisal costs
a. only on the balance sheet.
b. only on the income statement. a. any activity that can be used to predict cost changes.
c. on both the balance sheet and income statement. b. the attempt to control expenditures at a reasonable level.
d. on neither the balance sheet nor income statement. c. the person who gathers and transfers cost data to the
33.The costing system that classifies costs by both functional management accountant.
group and behavior is d. any activity that causes costs to be incurred.
a. process costing. 38. Activity-based costing and activity-based management are
b. job order costing. effective in helping managers do all of the following except
c. variable costing. a. trace technology costs to products.
d. Absorption costing. b. promote excellence standards.
34. Unabsorbed fixed overhead costs in an absorption costing c. identify only value-added activities.
system are d. analyze performance problems.
a. fixed manufacturing costs not allocated to units produced. 39.The amount of time between the development and the
b. variable overhead costs not allocated to units produced. production of a product is
c. excess variable overhead costs. a. the product life cycle.
d. costs that cannot be controlled. b. lead time.
35. A firm presently has total sales of $100,000. If its sales rise, c. production time.
its d. value-added time.
a. net income based on variable costing will go up more than 40. In the pharmaceutical or food industries, quality control
its net income based on absorption costing. inspections would most likely be viewed as
b. net income based on absorption costing will go up more a. non-value-added activities.
than its net income based on variable costing. b. business-value-added activities.
c. fixed costs will also rise. c. value-added-activities.
d. per unit variable costs will rise. d. process-efficiency activities.
36.The term cost driver refers to 41.If a firm's net income does not change as its volume
a. any activity that can be used to predict cost changes. changes, the firm('s)
b. the attempt to control expenditures at a reasonable level. a. must be in the service industry.
c. the person who gathers and transfers cost data to the b. must have no fixed costs.
management accountant. c. sales price must equal $0.
d. any activity that causes costs to be incurred. d. sales price must equal its variable costs.
37.The term cost driver refers to
42. Cost-volume-profit analysis is a technique available to d. have the lowest variable costs per
management to understand better the interrelationships of 46 .If a company's fixed costs were to increase, the effect on a
several factors that affect a firm's profit. As with many such profit-volume graph would be that the
techniques, the accountant oversimplifies the real world by a. contribution margin line would shift upward parallel to the
making assumptions. Which of the following is not a major present line.
assumption underlying CVP analysis? b. contribution margin line would shift downward parallel to
a. All costs incurred by a firm can be separated into their fixed the present line.
and variable components. c. slope of the contribution margin line would be more
b. The product selling price per unit is constant at all volume pronounced (steeper).
levels. d. slope of the contribution margin line would be less
c. Operating efficiency and employee productivity are constant pronounced (flatter).
at all volume levels. 47. If a cost is irrelevant to a decision, the cost could not be
d. For multi-product situations, the sales mix can vary at all a. a sunk cost.
volume levels. b. a future cost.
43.Consider the equation X = Sales - [(CM/Sales) (Sales)]. c. a variable cost.
What is X? d. an incremental
a. net income 48.The term incremental cost refers to
b. fixed costs a. the profit foregone by selecting one choice instead of
c. contribution margin another.
d. variable b. the additional cost of producing or selling another product
44. The contribution margin ratio always increases when the or service.
a. variable costs as a percentage of net sales increase. c. a cost that continues to be incurred in the absence of
b. variable costs as a percentage of net sales decrease. activity.
c. break-even point increases. d. a cost common to all choices in question and not clearly or
d. break-even point feasibly allocable to any of them.
45. In a multiple-product firm, the product that has the highest 49. Irrelevant costs generally include
contribution margin per unit will Sunk costs Historical costs Allocated costs
a. generate more profit for each $1 of sales than the other a. yes yes no
products. b. yes no no
b. have the highest contribution margin ratio. c. no no yes
c. generate the most profit for each unit sold.
d. yes yes yes a. product line contribution margin.
50.The potential rental value of space used for production b. product line segment margin.
activities c. product line operating income.
a. is a variable cost of production. d. corporate net income.
b. represents an opportunity cost of production. 55. A linear programming problem can have
c. is an unavoidable cost. a. no more than three resource constraints.
d. is a sunk cost of production. b. only one objective function.
51. In a make or buy decision, the reliability of a potential c. no more than two dependent variables for each constraint
supplier is equation.
a. an irrelevant decision factor. d. no more than three independent variables.
b. relevant information if it can be quantified. 56. Contracting with vendors outside the organization to
c. an opportunity cost of continued production. obtain or acquire goods and/or services is called
d. a qualitative decision a. target costing.
52. Which of the following costs is irrelevant in making a b. insourcing.
decision about a special order price if some of the company c. outsourcing.
facilities are currently idle? d. product harvesting.
a. direct labor 57.An outside firm selected to provide services to an
b. equipment depreciation organization is called a
c. variable cost of utilities a. contract vendor.
d. opportunity cost of production b. lessee.
53.A manager is attempting to determine whether a segment c. network organization.
of the business should be eliminated. The focus of attention d. centralized insourcer.
for this decision should be on 58.Which of the following costs would not be accounted for in
a. the net income shown on the segment's income statement. a company's recordkeeping system?
b. sales minus total expenses of the segment. a. an unexpired cost
c. sales minus total direct expenses of the segment. b. an expired cost
d. sales minus total variable expenses and avoidable fixed c. a product cost
expenses of the segment. d. an opportunity cost
54.An increase in direct fixed costs could reduce all of the 59. The basis for measuring the cost of capital derived from
following except bonds and preferred stock, respectively, is the
a. pre-tax rate of interest for bonds and stated annual dividend 63. When using one of the discounted cash flow methods to
rate less the expected earnings per share for preferred stock. evaluate the desirability of a capital budgeting project, which
b. pre-tax rate of interest for bonds and stated annual dividend of the following factors is generally not important?
rate for preferred stock. a. method of financing the project under consideration
c. after-tax rate of interest for bonds and stated annual b. timing of cash flows relating to the project
dividend rate less the expected earnings per share for c. impact of the project on income taxes to be paid
preferred stock. d. amounts of cash flows relating to the project
d. after-tax rate of interest for bonds and stated annual 64.When a project has uneven projected cash inflows over its
dividend rate for preferred stock. life, an analyst may be forced to use _______ to find the
60.All other factors equal, a large number is preferred to a project's internal rate of return.
smaller number for all capital project evaluation measures a. a screening decision
except b. a trial-and-error approach
a. net present value. c. a post investment audit
b. payback period. d. a time line
c. internal rate of return. 65. In capital budgeting, a firm's cost of capital is frequently
d. profitability used as the
61. If investment A has a payback period of three years and a. internal rate of return.
investment B has a payback period of four years, then b. accounting rate of return.
a. A is more profitable than B. c. discount rate.
b. A is less profitable than B. d. profitability index.
c. A and B are equally profitable. 66. The net present value method of evaluating proposed
d. the relative profitability of A and B cannot be determined investments
from the information given. a. measures a project's internal rate of return.
62. The time value of money is explicitly recognized through b. ignores cash flows beyond the payback period.
the process of c. applies only to mutually exclusive investment proposals.
a. interpolating. d. discounts cash flows at a minimum desired rate of return.
b. discounting. 67. Strategic planning is
c. annuitizing. a. planning activities for promoting products for the future.
d. budgeting b. planning for appropriate assignments of resources.
c. setting standards for the use of important but hard-to-find
materials.
3. If the following data are estimated for next year, what unit
d. stating and establishing long-term plans. sales would be needed to earn P 150,000 after taxes?
68. Chronologically, the first part of the master budget to be Forecast sales (P 30 per unit) P 600,000
prepared would be the Variable costs 240,000
a. sales budget. Manufacturing fixed costs 90,000
b. production budget. Administrative fixed costs 120,000
c. cash budget. Assumed tax rate 40%
d. pro forma financial statements. A. 13,333 units
B. 18,889 units
PROBLEMS C. 20,000 units
1. Jonlee Corporation reported sales of P 80,000 in 2006, P D. 25,556 units
96,000 in 2007 and P 112,000 in 2008. In an index analysis 4. If the economy is facing demand-pull inflation, which of the
where 2007 is used as the base year, the respective sales following would be a logical action by the government?
percentages would be A. Increase income taxes
A. 80%; 96%; 112% B. Lower the discount rate
B. 83%; 100%; 117% C. Buy government securities
C. 80%; 100%; 120% D. Increase government spending
D. 100%; 120%; 140% 5. A supplier extends a credit term of 2/10, n/60 (EOM). The
2. Green Company plans to purchase new equipment costing P EOM (end-of-month) term has effectively extended credit
140,000 plus freight and installation costs estimated at P period up to an average of 75 days from the last day of the
23,000. The purchase of the new equipment will prevent the discount period.
company from having to incur costs of P 30,000 to repair Using a 365-day year, what is the nominal annual cost of trade
equipment now in service. Depreciation on the new equipment credit?
has been estimated at P 20,000 each year. The income tax rate A. 11.45%
is 40%. The net investment in the new equipment for capital B. 11.30%
investment planning is C. 9.93%
A. P 173,000 D. 9.80%
B. P 153,000 6. Red Company established a standard cost for raw materials
C. P 145,000 at P 25.00 per unit. During the year, a total of 10,000 units
D. P 131,000 were purchased of which 50% was at P 24.70 each, 20% was at
P 24.90 each, and the balance, P 25.60 each. The raw materials dismantling) and labor costing P 1,000. Ignoring interest and
cost variance is income tax effects, Pink will realize a net benefit by
A. P 100 debit constructing its own on-site office of Forbidden Kingdom
B. P 100 credit project only if the length of the project is estimated to be at
C. P 900 debit least:
D. P 900 credit A. 18 months
7. On January 1, 2008, Brown Company has a receivable B. 20 months
balance of P 1 M. During 2008, it generated sales amounting C. 22 months
to P 20 M, of which 60% is made on credit. 2008 receivable D. 25 months
collections amounted to P 9,000,000. The accounts receivable 10. Assuming P 20,000 net annual cash inflows from a 4-year P
turnover is 59,120-capital investment project, the break-even rate of
A. 12.4 x return (IRR) for the project is closest to
B. 6.0 x A. 11.1%
C. 4.8 x B. 12.2%
D. 2.4 x C. 13.3%
8. A careful study by a companys cost analyst has determined D. 14.4%
that if a truck is driven 120,000 miles during a year, the 11. Assuming a current ratio of 3.5 and a quick ratio of 1.4,
average operating cost is P 11.6 per mile. If a truck is driven determine the amount inventory of a company whose current
only 80,000 miles, the average operating cost increases to P liabilities are P 120,000 and long-term liabilities P 480,000.
13.6 per mile. Using the high-low method, estimate the
unit variable cost. 12. Blue, Inc. uses a learning curve of 80% for all new products
A. 7.6 it develops. A trial run of 500 units of a new product shows
B. 12.4 total labor-related costs (direct, indirect labor, and fringe
C. 12.6 benefits) of P 120,000. Management plans to produce 1,500
D. 20,000 units of the new product during the next year.
9. Pink Construction needs an on-site office for its Forbidden
Kingdom Construction project. Pink can rent a house trailer for Determine the unit cost of production for next year for labor-
this purpose at a rate of P 100 per month. As an alternative, related costs. Round-off answer to the nearest whole amount.
Pink can construct an on-site office. Pink estimates that the
construction of an on-site office would require materials 13. Return on equity is 20%. Return on investment is 5%.
costing P 1,500 (20 percent of which are salvageable upon Determine the debt-equity ratio.
14. Purchases = 80% of cost of sales; Fixed overhead is, on the 19. Black Merchandising has an optimal order quantity of 2,000
average, 20% of inventory cost. If cost of goods sold is P units. Blacks customers demand 50,000 units each year.
250,000, then how much is the difference in income reported Transaction cost incurred is P 12 per order. If Black also
under absorption costing and variable costing? maintains a safety stock of 100 units, then how much is the
total annual carrying costs?
Edwards expected sales for June are $150,000. How much cash
will Edwards Company expect to collect in June?
a. $127,400
b. $129,000
c. $148,600
d. $152,520